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Policy Solutions

Wonder why the Carbon Price and Dividend is our best bet to stabilize the planet? Saving the planet won't happen on accident--we need a solution that addresses the nature of the problem itself, and that means engaging with energy economics and political theory. (Plus, Will Smith and alien invaders). Enjoy the Oregon Climate theory of change by co-founder and policy director Dan Golden. We welcome your reactions in the comment section below. Then join to help win our future!


The Problem: Concentrated Stakeholdership 

“A problem adequately stated is very nearly a problem solved.”

- Buckminster Fuller

Climate change is unique in many ways. Nearly everything we consume perpetuates its continuation, despite the existential threat it presents to civilization and biodiversity. The average American consumes 385 kilowatt-hours per day—the energy equivalent of 40 weeks hard labor. Notwithstanding anecdotes of long-range electric vehicles and solar power affordability, only 2.8% of the world’s energy is generated by renewable technologies. And although consumption of clean energy is growing at an historic rate, consumption of dirty energy is growing nine times faster. The depth of our dependence on fossil fuels is nearly impossible to comprehend.

Climate change is not a political problem, it’s a physical problem. Our struggles for economic justice, social welfare and equality are part of a legacy. We inherited them from our predecessors and will someday pass them to our successors. The climate is ours to win or lose. Adaptation will not be possible if global cumulative carbon dioxide emissions exceed one trillion tons.

The root cause of climate change, however, is totally unremarkable. The titans of fossil fuels (producers of gas, oil and coal, plus numerous energy intensive industries) skillfully and deliberately weaken the political will to contain carbon pollution. They lobby lawmakers, promulgate misinformation and manipulate elections. It’s a story as old as democracy: one special interest group leverages its stakeholdership in the status quo to secure the continuation of its advantage. Familiar analogies are commonplace in politics: prison unions block reforms of the criminal justice system, big pharma blocks formularies, and the mining industry blocks enforcement of groundwater contamination regulations.  

The captivity of American legislative priorities is in fact quantifiable. Gilens and Benjamin, analyzing 20 years of data, demonstrated in 2014 that political change is uncorrelated with public opinion. The priorities of interest groups and wealthy Americans, on the other hand, are reliable indicators of policy change. If there is one universal truth to American politics, it’s that every unrealized solution is blocked by a well-moneyed stakeholder in the problem.

But the world would be free of dirty energy by now if political change were a simple matter of wealth. Fossil fuels are the most profitable commodity in history, but their value is small relative to the price of climate inaction. Our failure to contain greenhouse gas emissions can only be explained by the concentration of stakeholdership in fossil fuels. The impending loss of life, property and biodiversity we now face will be unimaginably costly, but the dispersion of those costs is detrimental to the mobilization of our movement.

Climate change is about accountability. The producers of dirty energy don’t cover all of their operating costs—the rest of us do, in the form of superstorm cleanup, wildfire control, population displacement and loss of food security. The most intuitive solution, economists say, is also the most cost-effective one: bring the price of dirty energy in line with its true cost. Most regulations would become redundant if polluters were financially liable for climate change, and the playing field would be leveled for clean alternatives. Data reported by BP’s Statistical Review of World Energy substantiates this narrative. Global consumption of fossil fuels has decreased three times in history: the 1973 Oil Crisis, the 1979 Energy Crisis, and the Great Recession. Our ravenous appetite dirty energy is tempered exactly when it becomes less affordable to consumers.

Two climate solutions, known as “carbon pricing policies,” would harness the power of polluter accountability. The first is a “carbon tax” (sometimes called a “carbon fee”), in which polluters pay a scheduled price for each ton of carbon dioxide equivalent contained in their product. The second is a “carbon cap”, in which polluters forfeit “tradable permits” (sometimes called “allowances”) to a regulatory agency for each ton of carbon dioxide they emit. Since polluters would purchase allowances in an auction or secondary market, a carbon cap would achieve the same outcome as a carbon tax: it would make dirty energy less affordable. The superior Carbon Pricing policy is a matter of ongoing debate, but it’s not controversial that one will be necessary to secure the timely transition to a renewable energy economy.

The effectiveness of either solution is ultimately a function of its power to raise energy prices. Carbon taxes in British Colombia and Australia have reduced pollution cost-effectively, but their magnitudes—$23 and $27 per ton of carbon dioxide, respectively—were too feckless to initiate structural transformation of the energy economy. Rezai, Ploeg and Withagen estimated in 2012 that the IPCC reduction targets (85% below 1990 levels by 2050, zero carbon emissions by the end of the century) would require a price of $800 per ton of carbon dioxide emissions by 2100—equivalent to $12 gas.

A well designed carbon price would begin with a low tax, or equivalently, a high cap (allowances would be inexpensive if they are abundant). The price would increase gradually—with a predictable schedule in the case of a tax, or with a steady reduction in allowances in the case of a cap. The revenue generated from such a policy, then, would grow rapidly every year.

But this revenue must eventually vanish if the goal is a zero carbon economy: it makes no difference how expensive fossil fuels are if nobody burns them. The revenue generated from an effective carbon price, therefore, must eventually reach a maximum. Beyond this “Revenue Peak,” the effect of declining pollution would dominate the effect of rising pollution prices. Adaptations of national REMI’s 2014 Fee and Dividend model predict that an effective Carbon Price in Oregon would achieve a Revenue Peak of $4.9 billion per year in 2030—in a state with a biannual budget of $17 billion.

Some political operatives think of this carbon revenue like a budget to build alliances. It will take a powerful coalition to defeat the titans of fossil fuels, and it’s easy to win support for legislation from groups that would profit directly from it. But the solution to climate change must be informed by our understanding of the cause: the concentration of stakeholdership in fossil fuels. The best economic research predicts that energy suppliers would pass the majority of a Carbon Price down to consumers—thereby extracting dispersed income and concentrating it into our government. An effective Carbon Price, then, might actually concentrate stakeholdership in fossil fuels further, aggravating the root cause of climate inaction. If the revenue were to fund some public service or industry—be it schools, healthcare, solar panels or mass transit—the beneficiary will become a powerful adversary beyond Peak Revenue. Inevitably, the new stakeholders of carbon wealth would manipulate the political process to freeze the carbon price and arrest the transition to a zero-carbon economy. If abatement is difficult now, it will be impossible when a third of our government is financed by fossil fuels and gas prices reach $8 per gallon.

Public stakeholdership in undesirable commerce is far from abstract. Oregonian’s law enforcement and libraries rely on timber revenue, our health plan relies on cigarette sales and our general fund is financed in part by the Oregon Lottery. Predictably, the most vocal opponents to old growth conservation, tobacco regulations and rollbacks of regressive gaming are the public institutions we most value. When it comes to a Carbon Price, the difference will be a vastly greater revenue dependence, while the necessity for its elimination is vastly more urgent.

If this narrative rings theoretical to progressives, it’s totally intuitive to the rest of the country. The Yale Project on Climate Change Communication reports that 63% of Americans accept the climate consensus, but only 11% are “very worried” about it. If half of the country underestimates the danger of fossil fuels, what are we communicating when we propose to finance our government on them? We cannot credibly convey the urgency of climate action and simultaneously commit carbon revenue to finance liberal priorities. Our struggle for a livable future can discredit the pernicious narrative that climatology is some elaborate hoax to balloon the size of government, but only if we decouple the eternal controversy of revenue politics from the moral imperative to protect the climate. Carbon money is blood money—we can’t spend it.

Climate change cannot be solved by concentrating stakeholdership in fossil fuels further. If unprecedented revenue is an inevitable consequence of effective carbon pricing, the solution must ensure its dispersion—by distributing regularly, as a per-capita dividend.  After all, the natural beneficiaries of a carbon price should be the victims of climate change: everyone.

 


 

The Solution: The Carbon Dividend

“If I’d asked my customers what they wanted, they’d have said a faster horse.”  

- Henry Ford

Political capital may be difficult to measure, but it’s real, it’s easy to spend, and it’s difficult to build. The Affordable Care Act is an instructive case study. By 2008, virtually every doctor, insurance provider and healthcare professional were in agreement that structural changes to our healthcare system were necessary. The policy outcome was a disappointment to millions of Americans who were hoping for a single payer system, but Congressional Democrats had hoped that a pragmatic compromise might build momentum to something more progressive. It was clear by 2010 that this hope would not be realized, as the lowest-hanging political fruit became the promise to restore our broken healthcare system. The prospect of a single payer system in America today is more remote than ever.

But access to healthcare, unlike climate change, is not a physical issue. If Americans win a more equitable system in two or three decades, millions will have benefited from coverage in the interim. Climate stability, on the other hand, will become irreversible beyond a series of unforgiving tipping points—most notably the thawing of hydrates, which could release trillions of tons of methane, a greenhouse gas with 80 times the warming potential of carbon dioxide. Physical realities, unlike political realities, cannot be compromised. We must get this solution right the first time, because we don’t have the luxury of winning this battle twice.

Oregon Climate is a network of volunteers united by the conviction that we won’t win the right solution if we can’t ask for it by name: a dispersion of stakeholdership in fossil fuels on a scientifically meaningful timeline, achieved with an aggressive Carbon Cap and a commitment to return 100% of the revenue evenly to every Oregonian. This “Price and Dividend” solution is advocated by thought leaders of every political persuasion, including Robert Reich, George Shultz, Bill McKibben and James Hansen. Oregon Climate exists to prove its power in Oregon.

Our motivation is not to “do our part” for the climate—Oregon’s share of carbon pollution is globally insignificant. We are motivated by the adage that “the states are the laboratories of democracy.” Federal legislation has consistently followed the example of a state law since World War II: RomneyCare was the model for ObamaCare, California’s clean air standards were the model for the Clean Air Act, and as of this writing, national implementation of Oregon’s “Motor Voter” law is prominent in Hillary Clinton’s campaign platform. It would be reckless to assume that Congress might act on climate without the model of one state. And it would be difficult to find a better candidate than Oregon to lead the way.

A Federal Carbon Price could include a “Border Adjustment Tariff,” which would tax imports to account for their energy density and remunerate American manufacturers for exports to countries without a Carbon Price. A Border Adjustment Tariff would pressure countries like China to hold polluters accountable because their manufacturing sectors can only succeed if their products are cost-competitive in American markets. More important, it would prevent American businesses from relocating to avoid steeper energy prices. That would be detrimental to our economy, but it would also be detrimental to the efficacy of the Carbon Price itself: it doesn’t do the climate any good if American steel mills, for example, moved production overseas—we’d still be consuming the energy it takes to smelt the steel when they import it to us. The world shares a single atmosphere and a single energy economy.

The states are helpless to control business leakage because the Interstate Commerce Clause prohibits tariffs within the United States. If one state is to prove the model of effective carbon pricing, then, it must be one with robust renewable energy infrastructure—and two thirds of Oregon’s electricity comes from hydroelectric power. And since we don’t extract any fossil fuels, Oregon abatement of dirty energy keeps money within the state. Economic models published by the Northwest Economic Research Center at Portland State University confirm that a carbon pricing policy in Oregon would have a negligible impact on our economy.

State leadership may be a necessary condition for landmark federal legislation, but if it were a sufficient condition, California’s AB32 would already have changed Washington’s priorities. We believe an effective state model must address nationally relevant concerns. Perhaps the most common is that climate policy is a Trojan horse for liberal priorities, discussed in the previous section. But there are other reasons to suspect a Price and Dividend policy can succeed where AB32 failed.

A Carbon Price may be necessary, but its effect would be regressive. Most of the costs would be passed on to consumers, which is essential to the success of the price signal. There is no magic cocktail of policies that will free our civilization from fossil fuels without our noticing. If a climate solution doesn’t hurt consumers, at least a little, they will not modify their behavior. But low income families spend a relatively high fraction of their budget on energy, and a state model of climate policy would be difficult to scale if it achieves pollution reductions on the backs of disadvantaged communities. A simple, per-capita distribution of the revenue would reverse the regressively of a carbon price: any person consuming less than the average amount of dirty energy would get more money back from their dividend than they’d spend in higher energy prices. National models predict that a carbon price returning 100% of the revenue as dividends would be net beneficial to the lowest-income 2/3rds of Americans, whose absolute share of dirty energy consumption is relatively small. The revenue, then, flips the carbon price from a regressive policy to a progressive one.

It might be argued that exacerbated inequality is a reasonable price to pay for the continuation of civilization, but a regressive carbon price would be impossible to sustain. We have delayed action for too long to relearn the lessons of Australia, where the hard-won tax of $23 per ton of CO2 was repealed last year. If polluter accountability is politically vulnerable when gas prices increase 20 cents per gallon, what hope do we have of getting to $12 per gallon? The popularity of the Alaska Permanent Fund is a proven safeguard to polluter accountability. Three oil companies lease the rights to drill on Alaska’s North Slope, and the proceeds are issued annually as a “Permanent Fund Dividend” (PFD). Big Oil has attempted for decades to assuage their lease payments, but the PFD is politically invincible. A Price and Dividend model would attach the robustness of the PFD to a holistic climate solution.

It may be intuitive to direct the revenue of a Carbon Price to subsidize renewable energy, but public investment in technology is a fatal vulnerability. The Department of Energy (DOE) loaned $34.2 billion to renewable energy firms in 2011. To date, recipients of those loans have defaulted on $780 million of it—well below the $810 million of interest payments collected by the program. Notwithstanding, the one borrower with household recognition is Solyndra. If a Carbon Price were to finance 99 successful renewable energy endeavors and one failure, it would be impossible to counter the narrative that low-income families are paying $5 per gallon of gas to prop up Solyndra.

At Oregon Climate, we sometimes open our presentations with a thought experiment: If alien invaders were dropping carbon dioxide bombs into our atmosphere, would anyone debate the effect of greenhouse gases relative to natural cycles of warming? Or would we send Will Smith into orbit to dish out his intergalactic brand of hip-hop justice? Neither controversy around the science nor apathy can explain the lethargic political will to hold polluters accountable for climate change: the effort to mobilize our movement is inhibited by cynicism. When the solution feels actionable—when we can imagine that exploding flying saucer—we are inspired to volunteer ourselves. Oregon Climate’s innovation to ask for the solution we know we need has proven so successful in part because our volunteers believe in the idea. But it’s also true that the process of fighting for a state model is accessible. Oregon Climate provides avenues for immediate action, from citizen engagement with elected officials to community art projects.

The priorities of most climate advocacy groups are driven strongly by public opinion. Oregon’s most established environmental groups choose their priorities from public opinion polling, arguing that “failure is not a pathway to success.” Our commitment to the dispersion of stakeholdership of fossil fuels is not motivated by political expedience. The complexity of our vision presents an organizational challenge, relative to campaigns for coal power plant closures or subsidies for renewable energy. But if we must choose between a politically pragmatic plan and a climatologically pragmatic plan, our innovative solution is to choose the latter.

 


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  • commented 2015-11-23 02:40:42 -0800
    This interesting article usefully reinforces the view of Sir John Houghton, founder and former chair of the UNFCCC’s intergovernmental panel on the necessity of really challenging vested interests in fossil fuel production. However, the article fails to grasp the fact that Cap & Share /Cap & Dividend (see www.capglobalcarbon.org ) are not primarily dependent on the vagaries and weakness of the price mechanism to cut emissions. Instead they would work chiefly by directly and rapidly constricting fossil fuel production by way of a permit system. In addition the article fails to mention the advantages of cutting emissions by regulating the <100 global producers rather than by seeking to “cap” the planet’s uncountably large number of chimneys and other carbon emission discharge points.
  • commented 2015-11-22 19:14:09 -0800
    Unfortunately, this thoughtful and interesting paper has several weaknesses. First, it lacks an ending. What is this reasoning leading up to? A rationale for specific legislative action? At first, I thought part of the paper was missing.

    Second, who is expected to read it? Most people, I believe, would be put off by its academic tone and language, and its length.

    I did appreciate the opportunity to read it and pick up several new ideas.
  • commented 2015-06-18 04:24:27 -0700
    I strongly support these bills.
    Prof David P. Knight
  • commented 2015-04-03 22:04:59 -0700
    Since we need a massive, rapid conversion, give the dividends as credits spendable on sustainable economic goods: food, fuels, vehicles, buildings, materials, transportation, shipping, social services,… Allow everyone to invest in sustainable projects, whether or not we own good solar or wind sites, let us invest in projects at good sites, so even low income people can invest and get income from a sustainable economy. If they can’t meet all needs sustainably, give them a bigger part as cash if they want it but let them choose to get more in sustainable credits, e.g., $1 cash can be converted to $2 for sustainable purchases.