Earlier this week, a group of prominent Republican policymakers put forward a new climate proposal (you can read about it here, here, and here). The approach is very interesting because it would almost certainly sharply reduce greenhouse gas emissions. It is, in my view, among the most effective proposals for reducing greenhouse gas emissions that has been offered.
The approach would start with a price of $40 per ton of carbon dioxide and that would increase over time. The revenue would be returned on a per-capita basis to the American people through a check that arrives every three months.
Putting a price on emissions makes sense. Currently, emitters get to use the atmosphere as a free sewer for their greenhouse gases. So polluters enjoy the benefits of emitting but do not pay all the costs—particularly for their use of the atmosphere and for the climate damages that their greenhouse gases cause. Instead, those costs are subsidized by everyone else. That subsidy encourages the profligate use of the atmosphere and leads to harmful damage of the climate system. Common sense and basic economics tells us that’s a bad idea.
A $40 per ton fee to dump greenhouse gases in the atmosphere would account for this harmful subsidy and create a strong incentive to emit less. As emission decline over time, so would our future contributions to climate change. If we are reasonably lucky, that might keep the future impacts of climate change manageable.
The dividend is an important component of the proposal because it would help reduce the potential hardships from a carbon price and the potential for a political backlash.
Energy and transportation prices will very likely increase, at least in the short term, as a result of a carbon price. For some, particularly low-income families, higher energy and transportation costs could cause financial difficulty. The dividend would take care of that problem because the vast majority of low-income families would get back somewhat more through the dividend than the extra they would pay for energy and transportation.
Increasing energy and transportation prices also create a political obstacle to carbon pricing. If the carbon price is to be sustained over time, as it must be, then people will need to accept potentially higher energy and transportation prices. Receiving a check every three months for an equal share of the revenue would take the sting out of higher energy and transportation prices and therefore reduce the potential for public backlash.
It will be interesting to watch how Republicans, Democrats, and environmentalists react to this proposal. Substantively, each of those groups should find things to like about this proposal but it isn’t hard to see how misunderstanding and political calculations might get in the way.
Over the next week or so, I’ll dive in to some of those complexities and political considerations. For now, it’s worth noting that those who developed this proposal are making a very serious effort to reduce the risks of climate change. They deserve a great deal of credit for that.