The Little Engine that Could: New Climate Pricing System

New climate pricing system could reduce greenhouse gas emissions…and poverty

By: Andy Blair
Member, Citizens’ Climate LobbyCUSJ; and UUCH Climate Action Team

ChangeAheadBy now, everyone knows it: we need to reduce our greenhouse gas emissions drastically if we are to avoid the worst impacts of climate change on our environment, our health, and our economy.

But how can we do this in a way that doesn’t make life less affordable for people or businesses? After all, the carbon pricing strategies currently debated in Canada (regulations, Cap & Trade, or a straight carbon tax) will increase the cost of carbon-intensive products and services–such as fossil-fuel based transport or home heating–and they could make income inequality even worse.

The answer is really very simple: a new revenue-neutral system called “Fee & Dividend” could be the simplest, fairest, and most effective market-based solution to our climate conundrum.

Here’s how it works: fossil fuel companies pay a pollution “Fee” based on the CO2 emissions produced by the fuel they extract or import. The fee starts at, say, $15/ton and increases by $10 every year—dissuading people from using increasingly expensive fossil fuels—until climate goals are reached. Because it’s applied “upstream” (at the wellhead or at the border where it enters the economy) the fee affects pricing and usage downstream in virtually all sectors of the economy. This is a good thing: the increased costs of these fossil fuels is the price signal that discourages their use.

By levying a NAFTA- and WTO-compliant import fee on products from countries without comparable carbon pricing, this Fee & Dividend concept is designed to discourage nations like China from producing cut-price CO2-intensive goods at the expense of greener domestic production…and our climate. Border adjustments help level the global playing field, while inducing other countries to adopt comparable carbon pricing.

The heart of Fee & Dividend is the “Dividend,” and simplicity is its key.

Households with lower income, who tend to use less carbon, are rewarded

Every quarter, 100% of the Fee collected is divvied up and distributed to residents, just like GST cheques were. There’s no need for a new complex bureaucracy, as the Canada Revenue Agency is already set up to do it. This maximizes transparency and minimizes administrative costs.

The Dividend goes up as the Fee rises, helping the average family completely offset rising carbon prices. Unlike any other carbon pricing system, poverty can be reduced as households with lower income (who use less carbon than national average) get cheques much larger than their increases in cost. They come out ahead. In fact an estimated two-thirds of families would break even or gain financially, while the top one-third of income earners would face a choice: either reduce their carbon footprints, or pay more.

The Dividend gives people the buying power to switch to lower-emission alternatives. Individuals, inventors and investors all have a predictably growing financial incentive to shrink carbon footprints. With the Fee “stick” and the Dividend “carrot,” Fee & Dividend leverages the power of the entire marketplace, without the political volatility of regulation or subsidies.

The Dividend boosts the local economy

In-depth studies of Fee & Dividend have predicted that it will be a strong net job creator, while reducing emissions significantly. Revenue-neutrality in particular is critical. By putting more money in the pockets of people likely to spend it—but not so much they won’t spend it locally—Fee & Dividend would stimulate job creation and economic activity in their communities. Modelling shows that the expected job losses in the fossil fuel industry are more than offset by growth in manufacturing and construction (for example, wind, solar, efficiency in buildings and transportation), as well as in retail and health services.

Revenue recycling is also important for public acceptance. British Columbia’s successful and popular carbon tax is revenue-neutral, while Australia’s recently repealed carbon tax was not.

Fee & Dividend is a new system on the scene in Canada, but it is catching on, thanks to committed individuals like Cathy Orlando, James Hansen, and Joanne Light in the Citizens’ Climate Lobby—a grassroots citizen group advancing it as part of the solution. Their tireless work is getting noticed: after getting published in papers such as the Chronicle Herald, in August the Globe and Mail editorial board endorsed Fee & Dividend as the best option for the country.

This autumn, I hope Unitarians across the country who take the Seventh Principle to heart will look closely at Fee & Dividend as a way to reduce greenhouse gas emissions and poverty at the same time. It may only be part of the solution, but it could be an important part. And Canada could go from climate laggard to climate leader on the world stage if it becomes the first country to implement Fee & Dividend.



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