Will America Buy a New Climate Policy?

James Boyce

Without much fanfare, U.S. legislators last December unveiled a new climate bill that just might succeed in breaking the political gridlock that has blocked action on global climate change. The bill, co-sponsored by Senator Maria Cantwell (D-WA) and Susan Collins (R-ME), is a sharp departure from the cap-and-trade bill that passed the House of Representatives last June but subsequently died in the Senate.

The Carbon Limits and Energy for America’s Renewal (CLEAR) Act proposed by Cantwell and Collins is a “100-75-25-0” policy:

  • 100 percent of the permits to bring fossil carbon into the U.S. economy will be auctioned. Polluters won’t get any permit giveaways, and there will be no scope for speculation and market manipulation by Wall Street traders.
  • 75 percent of the auction revenue is recycled directly to the public as equal per-person dividends. The majority of households will receive more in these monthly dividends than they pay in higher energy costs.
  • 25 percent of the auction revenue is dedicated to investments in energy efficiency, clean energy, adaptation to climate change, and assistance for sectors hurt by the transition away from the fossil-fueled economy.
  • Zero offsets are allowed. In other words, polluters can’t avoid curbing use of fossil fuels by paying someone else to clean up after them.

The bill’s political prospects are uncertain. The coal and electric utility lobbies will fight for the permit giveaways of the moribund House bill. Wall Street and the financial sector — with about 130 lobbyists working the climate policy issue in Washington — want a carbon market as a new outlet for their creative talents. But the cap-and-dividend alternative has emerged from the political shadows as the leading candidate to replace cap-and-giveaway-and-trade.

International Implications

The design of national policies to curb fossil carbon emissions in many ways is distinct from the architecture of an international accord. National policies deal with how to cut emissions and allocate distributional impacts within countries. International accords deal with how to allocate emission rights across countries and raise funds for North-South financial transfers (aka climate debt service) for mitigation and adaptation. But the two policy arenas are not entirely disconnected.

Passage of the new bill could improve the prospects for an international deal in three ways.

First and foremost, CLEAR would remove a key impediment to an international agreement: the refusal of the U.S. government — in particular, the Senate — to act on climate change. CLEAR would not only establish the architecture for U.S. implementation of any international agreement on emission reductions, but also give the U.S. public an incentive to support more ambitious targets. A tighter cap would mean bigger dividends and hence bigger benefits to most families. Finally, CLEAR could inspire others to consider this approach. Studies of other countries, such as China and Hungary, show that a cap-and-dividend policy would benefit the majority of their people, too.

The bill doesn’t address U.S. contributions to climate change mitigation and adaptation in other countries. Modest transfers could be financed from the bill’s investment fund. But such transfers would not meet either the need for assistance or the commitments required for an international accord. Ultimately, however, international transfers shouldn’t be financed from carbon permit revenue, which is a regressive tax in the absence of dividends, instead of general government revenue.

A Part of the Whole

CLEAR can be one element of a comprehensive U.S. climate policy. Like anything that keeps “oil in the soil” and “coal in the hole,” it will make fossil fuels more costly. The resulting price signals will drive firms and consumers to invest in energy efficiency and renewables. By recycling most of the carbon revenue back to households as dividends, CLEAR can head off a backlash against higher energy prices and win durable public support at a time of general economic difficulty.

Other elements of smart climate policy include public investment — notably in R&D, retrofitting buildings, mass transit, and a “smart grid” for electricity — and regulatory standards that work where price signals can’t reach.

If America clears the way for CLEAR, it will not be the last word. But it will be a big first step.

A version of this post appeared in Foreign Policy in Focus.

4 Responses to “Will America Buy a New Climate Policy?”

  1. Mark says:

    This makes more sense than so-called Cap & Trade w Carbon off-sets & permit give-a-ways, which is an obvious scam, which won’t encourage development of cleaner power technologies, & which could lead to the next Wall St Bankster bubble. The first step to the problem of dirty fuels & a necessary prerequisite to alternative non/low polluting power sources- is greater efficiency & more effective use of current resources – IE: setting 40 – 50 mile/gal as the standard for cars. And further development & encouraging of public transport IE: instead of over-emphasizing building roads & hi-ways thus encouraging more driving of private vehicles, what about developing hi-speed trains as a more efficient choice to both driving & short distance air travel. We should look to use oil to phase out coal, methane & bio-gas replace gasoline [being real cautious about bio-fuels that encourage diverting food crops &/or land to feed cars instead of people &/or cutting down forest to grow oil palm for bio-diesel], etc. And building more power efficient buildings, while developing & bringing cleaner power technologies online. And how about taxing & penalizing real pollution rather than the ubiquitous CO2 gas, which every living human & animal breathes out & every plant takes in as an essential for photosynthesis.

  2. Arne says:

    I agree that the simple architecture of a cap&dividend bill is quite appealing. The proposed CLEAR Act however lacks environmental ambition. E.g. here: http://climateprogress.org/2010/02/01/misguided-cap-and-divide-bill-by-cantwell-and-collins-is-neither-politically-nor-environmentally-viable/

    In addition, if all revenue is being spend domestically (no matter if it is as a dividend or to invest in renewables and efficiency) there is a lack for international climate finance. If the US wants to engage in fighting climate change on a global level and if the US is ready to take on its historic responsibilities, it has to help other countries in mitigation and adaptation. Where should the money come from if not from auctioning CO2 allowances?

    To me (as a German) the debate among US environmentalists to decide between EITHER a cap&trade OR cap&dividend is a fake one. This debate largely happens in the US, but not outside. If you design a cap&trade in the proper way, it delivers the job. That’s why most of European NGOs fight to improve the EU-ETS, but not to abandon it. The EU-ETS is seen as the key policy to reduce emissions in the power and industrial sector. For transport, for buildings, and to bring new technologies into the markets, we need however different policies (e.g. such as feed-in tariffs for renewable energies).

    The problem in US Congress and the Senate climate bill is, that too many special provisions [to buy-in Senators] need to be included that weaken the architecture of the trading scheme. That’s why a cap&trade got in the US such a bad reputation and that’s why cap&dividend will politically never get a majority, because it lacks the possibility to offer these special provisions.

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