Excerpted from the new book: Climate Solutions: A Citizens Guide
In 2006, NASA’s top climate scientist warned that we have at most a decade to turn the tide on global warming. After that, James Hansen said, all bets are off. Temperature rises of 3 to 7 degrees Farenheit will “produce a different planet.”
If Hansen is right—and most scientists think he is—then every year lost is a year closer to the precipice. In more positive terms, we have one last chance—but only one chance—to save the planet.
For many decades, human emissions of greenhouse gases have exceeded the atmosphere’s capacity to safely absorb them. We need an economy-wide system to reduce those emissions steadily and surely.
The atmosphere itself is a commons—a gift of creation to all. It performs many vital planetary functions, including climate maintenance. The trouble is, we humans—and especially we Americans—are disturbing it with our pollution. Even though we know we’re doing this, we don’t stop. Indeed, we can’t stop as long as our current system for using the atmosphere persists. That system—first come, first served, no limits and no prices—is clearly dysfunctional. We need an economy-wide system to reduce atmospheric disturbance. The design of that system is what the debate is about.
Here are a few principles that can help us think about that design:
- The simpler a system is, the more likely it is to work.
- The fairer a system is, the more likely it is to last.
- In the future, polluters should pay for the right to pollute.
That third principle is particularly important because, when all is said and done, the debate about system design is a debate about who will pay whom. Many large and powerful companies—what I call the legacy industries—are happy with the arrangement in which polluters pay nothing. But pollution has real costs, and if we want to fix the climate crisis, someone must pay them. If polluters don’t, the rest of us will. We’ll pay them in the form of higher energy prices, which will reduce our disposable incomes substantially.
In theory, a descending economy-wide carbon cap is the best way, if not the only way, to guarantee a predetermined decrease in carbon emissions by a predetermined date. That’s because it’s an absolute limit on emissions rather than just an incentive or regulation.
A carbon cap would function through the issuance of permits. Each year the number of permits would be reduced. Because a cap requires permits, it introduces the opportunity to trade those permits. Businesses like this feature because it gives them flexibility in reducing emissions. But it’s important to remember that the key to the system is the cap, not the trading.
As fewer permits become available, their price in the market will rise, and the higher prices will be passed on to consumers. If private companies keep the higher prices, they’ll reap windfall profits. If government gets the higher prices, the money can be used for public benefit. If citizens get the higher prices back, they can maintain their current purchasing power.
The main arguments for carbon capping are:
- It physically drives down pollution, which is the only way to ensure sufficient reductions within the time required;
- If done right, it can cover all the carbon in the economy;
- If done right, it can return money to citizens and generate revenue for public investments;
- Businesses prefer a cap to regulations and taxes, and politicians will vote for a cap.
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.
Dividends address the dark side of carbon capping—the fact that rising carbon prices will take money out of everyone’s pockets. According to the Congressional Budget Office, the average U.S. household will pay $1,161 a year in higher energy prices when carbon emissions are reduced 15 percent. As emission reductions increase, so will the cost to households. By recycling higher carbon prices back to households, rebates protect our disposable income while we reduce carbon emissions to safe levels.
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. Important measures are:
- A huge investment in mass transit and smart electricity grids;
- Steadily rising efficiency standards for motor vehicles, airplanes, buildings, and appliances;
- Steadily rising renewable energy requirements for electric utilities.
- Transition assistance to workers, communities, and businesses badly hurt by rising fuel prices.
- Green collar job training.
Citizen involvement is critical. Citizens must pressure politicians to hang tough on these measures. It’s always tempting for politicians to grant concessions to powerful companies, we can’t afford to do so this time. The stakes are too high and the margin for error too small.
If done right, a descending economy-wide carbon cap is the single best tool to fight climate change. If done wrong, a cap won’t reduce emissions sufficiently and will transfer hundreds of billions of dollars from ordinary Americans to polluting companies and their shareholders.
Doing a cap right means:
- Covering all carbon in the economy
- Selling permits rather than giving them away free
- Paying dividends to residents
- No offsets or safety valves
- Protecting businesses with carbon border fees
Doing a cap wrong means:
- Exempting sectors or industries
- Giving polluters free permits
- Putting the burden of higher energy costs on families
- Allowing offsets and safety valves
We need to act quickly—by 2009 at the latest—to fix the market flaw that causes climate change.That means creating a workable and lasting system for limiting our pollution of the atmosphere. Such a system would reflect the fact that the atmosphere is commons that belongs to everyone. It would cap carbon as it enters the economy, and gradually lower the cap so that, by 2050, emissions are at least 80 percent below the current level.