Cap, Auction, and Dividend
This comes from a different source, see Commons Action for the United Nations, from a document prepared for CSD 19, April 2011, A Growing List of Ideas We Can Use for Education and Outreach. Info via "Lisinka Ulatowska" <[email protected]>
“Cap, Auction and Dividend” is also called Cap and Share.
All the necessary technology and finance are available to solve the climate problem (EISENBEISS 2008) and at the same time, mankind harvests food sufficient for 12 billion people. Nonetheless, one billion out of seven billion people are starving and the climate is changing. How can we design a global economic policy that prevents climate change and at the same time makes the economic value of the atmosphere as a global common good available to its owner, i. e. to each individual per capita?
The proposed mechanism is a „cap, auction and dividend“ model.
1.) Emission rights are not granted by nation but globally auctioned, i. e. by a UN body. The revenue is
2.) granted per capita individually and directly. Banking facilities are being made available and affordable globally by the implicit support for micro-finance systems.
3.) Economically developing countries and economically developed countries alike can proceed on their trail of growth, and economically less developed countries can through the influx of purchasing power (to the people, not to the potentate) embark on such a trail of growth. The limitation per capita allows for a smooth and effective path for reducing emissions over decades.
4.) Focusing on the main cause for global warming, fossil fuels (oil, coal, gas), allows for input orientation: Whenever a ton of these is being sold into the economic cycle, an equivalent amount – of roughly three tons – of emission rights must have been purchased before (EISENBEISS 2007a).
Constraints and Operating Levels in International Climate Change Prevention
There are three major constraints for international climate protection:
1.) The emission of greenhouse gases is to be limited globally (PFEIFER 2011).
2.) The emission absorption capacity of the atmosphere as a “resource” must be used efficiently. Therefore, the resource should possess a global price.
3.) A world-wide per-capita solution is required, as agreed by German Chancellor Merkel and Indian Prime Minister Singh in 2007. Countries like China and India, whose participation is vital for climate change prevention, could otherwise not agree to join, as their economic growth does not allow them to reduce emissions compared to 1990 (Kyoto).
An approach from Institutional Economists (3-Level-Model):
1. Level (Sufficiency):
Determining the maximum allowed level of global emissions (per annum) as a limitation (“Cap”).
2. Level (Efficiency):
Globally auctioning off the permitted volume determined on level one. Input orientation: Since the amount of CO2 for each combusted carbon molecule is known, sellers of carbon (e. g. contained in oil and coal) must purchase an equivalent amount of emission rights (EISENBEISS 2008).
3. Level (Equivalence):
The proceeds from level two are paid out per capita globally – for instance by a UN body.
Design and Challenges
The first two levels represent the known cap & trade model. Through the third level, the model responds to claims by German Chancellor Merkel and Indian Prime Minister Singh for a per-capita-solution, allowing China and India to join and in their own interest. In July 2008, negotiations on climate change prevention during the G8 summit failed, because India and China refused to accept the proposed policies due to a lacking percapita- solution as it is outlined in this paper.
How can a global payout be realised? In developed economies, the payout or bonus can be paid to the clearing account corresponding to the personal tax number. Owing to a spreading microfinance system, also inhabitants of poor countries increasingly have access to banking services.
In countries where this is not the case, the money could go to local governments to make sure people are fed and to install banking systems.
In the case of corrupt regimes, the money for the population should go to UN bodies, for instance the United Nations World Food Programme (WFP), to ensure the minimum food and water supply to those in need.
How can global suppliers of fossil fuels be made to agree? By their governments. The economic argument is: since the obligation to purchase emission rights prior to the sale of fossil fuels hits all suppliers, it represents an increase of factor costs and will be – like all other costs of production and like all other climate measures – carried by consumers. Those consumers using less than average amount of a resource, will receive a financial net benefit through the disbursement (third level).
Political and Economic Implications
The application of such a model systematically ensures that climate protection parameters are observed globally and that CO2 is used efficiently. The model enforces financial incentives for innovative technologies and both research and entrepreneurial initiative in climate protection. National governments can abstain from trying to manipulate climate prevention measures on an operational level (such as through administrating low energy house and car programs etc.) and rather focus on a framework setting – an ordoliberal approach.
A single emission price, globally, provides corporations with increased planning reliability and secures jobs. Corporations are not forced to relocate production due to unequal emission and climate protection regimes. Because it does not increase costs in a single economy locally, it does not distort international competitiveness of a single nation.
Emission rights are being purchased by those who have the highest avoidance costs and those corporations who produce the highest economic benefit for their customers by applying the most efficient use – expressed through the ability to pay the highest auction price.
Climate protection does not only become economically beneficial but also democratically feasible, as consumers do not fear to lose access to goods and services through increased prices.
An emission price of 40 to 50 US-Dollars per each of the allowed 20 to 30 billion tons would yield a payment of about 12 to 14 US-Dollars per capita globally. For the poorest, this results in the abandoning of hunger."