Carbon Caps With Universal Dividends: Equitable, Ethical & Politically Effective Climate Policy

A new policy brief from the Institute for Local Self-Reliance concludes that universal dividends are a critically important tool to create the political will and public acceptance for a carbon cap. Universal dividends have the potential to hold harmless a large segment of consumers while we move to a low-carbon economy. Moreover, the universal dividend honors the principle that the sky belongs to all of us equally. Private investment in clean and efficient technologies will be driven by a carbon cap that leads to steady reductions over time of GHG emissions and carbon-based fuels.

Common to many proposals addressing climate change is a cap on carbon emissions or carbon content of fuels. A cap will generate a market value for carbon. A key issue is who will receive this value. Many agree that there should be a 100 percent auction of carbon permits, but there many opinions about how to disburse the money gained from selling these permits. This paper argues for a universal, equal dividend returned to each person.

A nationwide auction of carbon allowances conservatively could raise $50 - $200 billion annually or about $1 billion to $4 billion per year at the state level in a state like Minnesota (at the higher level, this represents about 15 percent of annual state government spending).

A universal dividend makes a carbon cap ethical, equitable and politically effective.

Ethical – If the sky is owned by all humanity equally, then any value created from carbon caps should be distributed in equal amounts to everyone.

Equitable – A cap on carbon will raise the price of energy and energy intensive goods and services. A universal dividend will especially help low and middle income households absorb and manage those cost increases. Indeed, lower income households, on average, should receive back more in dividends than they pay in higher prices for fuels and products.

Politically Effective – Per capita dividends will enhance public acceptance of a carbon cap by largely or completely offsetting the negative economic impacts on tens of millions of households. In the early years of the cap, the price of carbon (along with energy and most consumer products) will increase as we establish a market price that will encourage supplies and manufacturers to substitute existing energy sources for low carbon fuels. But since the dividends rise as the value of carbon rises, the net impact on most households will be small.

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New Study Proposes Powerful Strategy to Expand Renewable Energy and Boost Local Economies

Several European countries and the Canadian province of Ontario have recently adopted feed-in tariffs, a mandated, long-term premium price for renewable energy paid by the local utility company to renewable energy producers. A new study by the Institute for Local Self-Reliance (ILSR) shows how feed-in tariffs could turbocharge Minnesota’s renewable electricity standard, reduce costs, and spread the economic benefits across the state.

“For years states have relied on federal tax credits or renewable mandates,” says study author John Farrell, “but feed-in tariffs combine the goal and the tool for boosting renewable energy production. It’s the perfect implementation tool for states that already have a renewable mandate.”

The report shows that this simple, yet powerful, strategy to expand renewable energy benefits local economies and achieves greater results at a lower cost than other strategies like tax incentives or renewable energy mandates alone.

“Evidence in European countries shows that feed-in tariffs encourage more renewable energy production for a lower cost. By enabling citizens to produce their own energy, it also helps retain the economic benefits of increasing renewables.”

Renewable Energy Feed-In Tariffs (REFITs) level the playing field by scaling renewable prices by the project size and the available resource (e.g. wind speed). The adjustable price supports small-scale projects while growing renewables on a large scale.

The full report, Minnesota Feed-In Tariff Could Lower Cost, Boost Renewables and Expand Local Ownership, can be viewed online at http://www.newrules.org/de/feed-in-tariffs.pdf. For more information, or to arrange an interview with John Farrell, please contact Brooke Gullikson.