Climate Policy as Wealth Creation, Part 5

James K. Boyce

This is the final installment of a five-part series on climate policy adapted from regular Triple Crisis contributor James K. Boyce’s March 31 lecture for the Climate Change Series at the University of Pittsburgh Honors College. This installment lays out his case for a cap-and-dividend policy, which Boyce argues would put into practice the “widely held philosophical principle … that we all own the gifts of creation in equal and common measure.”  The first four installments of the series are available herehere, here, and here.

The full lecture and subsequent discussion are available, as streaming video, through the University of Pittsburgh website. Click here or on the image below.

The Case for Cap and Dividend

A carbon price is a regressive tax, one that hits the poor harder than the rich, as a proportion of their incomes. Because fuels are a necessity, not a luxury, they occupy a bigger share of the family budget of low-income families than they do of middle-income families, and a bigger share for middle-income families than for high-income families. As you go up the income scale, however, you actually have a bigger carbon footprint—you tend to consume more fuels and more things that are produced and distributed using fuels. You consume more of everything; that’s what being affluent is about. If you’re low-income, you consume less. So in absolute amounts, if you price carbon, high-income folks are going to pay more than low-income folks.

Well, under a policy with a carbon price, households’ purchasing power is being eroded by that big price increase, that big tax increase. But money is coming back to them in the form of the dividend. Because income and expenditure are so skewed towards the wealthy, the mean—the average amount money coming in from the carbon price and being paid back out in equal dividends—is above the median—the amount that the “middle” person pays. So more than 50% of the people would get back more than they pay in under such a policy. As those prices are going up, then, people will say, “I don’t mind because I’m getting my share back in a very visible and concrete fashion.” I would submit to you that it’s politically kind of fantastical to imagine that widespread and durable public support for a climate policy that rises energy prices will succeed in any other way.

There are precedents for doing this kind of thing. The best known is the Alaska Permanent Fund. In the 1970s, the Republican governor of Alaska, Jay Hammond, instituted this policy when North Slope oil production was starting up. What they did was impose a royalty payment on every barrel of oil being pumped out of Alaska. They said that this oil, under the ground in Alaska, belongs to every Alaskan in equal and common measure—current Alaskans and future generations, too. So what we’re going to do, they said, is to charge a royalty for extracting our oil, put it in this thing we’ll call the Permanent Fund, and use it in three ways: Part of that will go for permanent investment. Part of it will be put into financial markets so that it’s always there, even after the oil is gone, for future Alaskans. And part of it will be paid out in an equal per-person dividend to every man, woman, and child in the state of Alaska. That payment now is something around the neighborhood of $2,000 a year. For wealthy Alaskans, that’s a nice shopping trip down in Seattle or Los Angeles. For low-income Alaskans, including many Native Americans in Alaska, that’s a lot of money. It’s a significant increase in their incomes. So this way of providing dividends is not a complicated thing to do. This is not rocket science, folks, it’s dead easy.

Apart from that, however, I think that this is a policy that has deep philosophical appeal, because what it’s founded on is the principle that we all own the earth’s resources, the gifts of creation, in equal and common measure. In this specific case, the planet’s limited carbon absorptive capacity does not belong to corporations, it does not belong to governments, it belongs to all of us. Cap and dividend is a way of implementing that sense of common ownership, rather than abdicating ownership—giving it away for free—which we currently have under the open access regime.

In short, such a policy is consistent with the phrase of the artist Diego Rivera, “The Earth belongs to everyone, like the air, and the water, and the light and heat of the sun.” I would submit that a cap and dividend policy is consistent with that underlying ethical premise, and further that this is a premise that is widely shared. If you ask most people, not only in this country but around the world, who owns the air, or who owns the gifts of creation, the answer would be that we all own them in equal and common measure. I think our challenge in addressing climate change is to translate that very widely-held philosophical principle into actual policy, by which we, as the owners of the gifts of creation, actually use those gifts responsibly. In the case of the atmosphere’s ability to absorb carbon dioxide emissions, that means limiting the amount of carbon we put in the atmosphere. That’s what we need to do.

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