Cap and Dividend Carbon Trading Model
This excerpt is from Peter Barnes new book Climate Solutions: A Citizens Guide (Chelsea Green). His 2001 book Who Owns the Sky? presents the Cap and Dividend Carbon Trading Model or Skytrust model in detail.
Via On The Commons.
“Carbon capping comes in three varieties: cap-and-giveaway, cap-and-auction, and cap-and-dividend. All start with descending caps. The differences among them lie in who pays whom, and how leaky the caps are. In cap-and-giveaway, permits are given free to historic polluters. This is called “grandfathering.” The more a company polluted in the past, the more permits it gets in the future—not just once, but year after year. As the descending cap raises the price of fossil fuels, everyone pays more, and the companies that get free permits keep this extra money. Their profits and stock valuations soar, while energy users bear the costs.
In Europe, a carbon cap-and-giveaway program handed billions of Euros in windfall profits to a few large utilities. In the U.S., an MIT study estimated that grandfathering permits to American utilities would give them hundreds of billions of dollars in extra profits every year for several decades—a staggering amount of money that would ultimately flow to their shareholders.
In cap-and-auction, permits are sold to polluters, not given away free. Permit revenue is collected by government rather than private corporations. What government does with the money is then up to public officials. It could be used to speed the climate transition, though there are no guarantees.
In cap-and-dividend, permits are also sold, not given away free. However, the revenue doesn’t go to the government—it comes back in the form of equal dividends to all of us who pay it. This revenue recycling system is sometimes referred to as a sky trust.
A cap-and-dividend system, or sky trust, is a way to reduce carbon dioxide emissions without reducing household income. How you’re affected depends on what you do. The more energy you use, the more you pay. Since everyone gets the same amount back, you gain if you conserve and lose if you guzzle. Thus, the “winners” are everyone who conserves fossil fuel—plus our children who inherit a stable climate.
The premise of a cap-and-dividend system is that the atmosphere belongs to everyone equally. Its central formula—from each according to their use of the atmosphere, to each in equal share—is fair to poor, middle class, and rich alike. The poor benefit most, however, because they pollute the least.
From a political perspective, a carbon cap with monthly dividends would be the most popular federal program since Social Security. It would lock in popular support for emission reductions no matter how high fuel prices rise. On top of that, it would take politicians off the hook for rising prices. If voters complain, politicians can say, “The market sets prices, and you determine by your energy use whether you gain or lose. If you conserve, you come out ahead.”
To make sure the cap is airtight, there’d be no safety valves or substituting of offsets for permits. To prevent stalling or backsliding, the rate at which the cap descends would be set at the outset by Congress, or delegated to an independent trust. To protect U.S. manufacturers and workers, carbon border fees would be added to imports from countries with low carbon prices. We must also change government priorities. This requires cutting subsidies to fossil fuels and investing in clean energy instead. It also requires higher efficiency standards.” (http://onthecommons.org/content.php?id=1343)