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Congress: Fix the market bug, with Carbon Fee and Dividend

REUTERS/Kyle Grillot
West Coast wildfires are so intense that firefighters call them mega fires, not forest fires.

My day job is working for Microsoft as a technical account manager. My responsibilities include making sure that companies who use our products and services are getting value from them. If something with our software breaks, it falls on me and a team of technical engineers to help resolve the issue. Going through a major issue is never fun. It creates undue stress, and many times is preventable through a change in process or education. In some instances, the data clearly show that the root cause of an issue is a bug in our software that needs to be fixed. We fix it because it’s the right thing to do for our customers.

Tim Reckmeyer

Today there’s a bug in the market that members of Congress need to fix. They need to fix it because it’s the right thing to do. What’s that bug? Taxpayers are subsidizing the very thing that we turn around and socialize the costs of. Let me “double click” into that and explain.

Taxpayers in the United States spend trillions of dollars per year subsidizing fossil fuels. When those fossil fuels are burned, carbon dioxide is released into the atmosphere and contributes to the greenhouse effect. The greenhouse effect was established as a scientific certainty during President Abraham Lincoln’s life. There is zero scientific dispute that the greenhouse effect is real, and you likely learned about it prior to your high school education. The greenhouse effect combined the extra carbon dioxide from burning fossil fuels causes global warming. Global warming leads to climate change.

Mega fires and flash droughts

Climate change does not cause extreme weather, but exaggerates naturally occurring events. West Coast wildfires are so intense that firefighters call them mega fires, not forest fires. The smoke from these mega fires reach Minnesota and put the health at risk of almost 500,000 Minnesotans with asthma. Flash droughts are currently impacting Montana and North Dakota. The impacts have decimated the wheat harvest that farmers depend on for a living.

The number of hurricanes does not rise because of climate change, but a hurricane’s strength is amplified by warmer oceans, a warmer atmosphere and sea level rise. The combination leads to a more intense storm, larger storm surge and more rain to dump on us. These events decimate entire communities like Houston, the U.S. Virgin Islands, parts of Florida and Puerto Rico while taxpayers foot the repair bill. That bill is billions of dollars, and it adds to our growing deficit and debt.

Houston was just starting to recover from Hurricane Harvey when Hurricane Irma made land fall in Florida. The repair bill, according to Houston’s mayor, could be upwards of $180 billion and the state of Florida has preliminarily outlined more than $273 million in Hurricane Irma costs for federal reimbursement. The Federal Emergency Management Agency (FEMA) is burning through $1 billion dollars per week helping victims of Hurricane’s Harvey and Irma along with the wildfires burning in the west.

Subsidizing the very thing that we turn around and socialize the costs of is the very definition of fiscal lunacy.

Supported by conservatives and liberals

The great news is that there is a fix to this market bug. The bug fix is called Carbon Fee and Dividend. This type of fix is supported by Republicans and Democrats. It’s supported by conservative and liberal economists. It’s supported by oil, gas and auto industries. Its supported by environmental groups. It’s supported by Republican statesmen George Schultz and James Baker. It’s an economic winner. It’s a job creation winner. It’s an environmental winner.

Fixing the bug will speed the transition from our dirty energy past and into a clean energy future. It will clean up our air and water. It will keep America competitive with all other countries that are rapidly moving to a clean energy economy — like China and India. Most important, with almost 3 million jobs it will create over $1 trillion of economic growth, and the American worker will benefit.

Abraham Lincoln said, “You cannot escape the responsibility of tomorrow by evading it today.” In human civilization our climate has never changed this fast. My heart breaks for those impacted by hurricane’s Harvey, Irma and Maria, especially the poor and vulnerable. My blood boils knowing there is a bug in the market and Congress has the power to fix it.

It’s time we let our elected officials know that we want bipartisan solutions, like Carbon Fee and Dividend. Solutions like this allow each of us — through our individual choices, not mandates — to contribute to creating a world that is better for all of us and our children.

The question is, are you willing to let Congress know you want those bipartisan solutions? If so, start here

Tim Reckmeyer lives in Scott County with his wife and two daughters. He is the leader of the Scott County chapter of Citizens’ Climate Lobby (CCL). You can reach him at scottcounty@citizensclimatelobby.org.

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Comments (20)

Good article, good concept

Good article, good concept Tim. Would help if you could explain a bit more just what "carbon fee and dividend" means.

My understanding is that instead of a carbon tax that is put into general revenue funds, this fee on producers of carbon-producing products and processes is returned to citizens as compensation for possible increased prices on items like gasoline and plastics. Finally addressing the socialized cost of several industries profits. It's a market-based solution, revenue-neutral, and has received bipartisan support.

Your metaphor of a software bug is excellent, perhaps you could do the same illustrating the actual concept? I for one would really appreciate it.

thanks for the article!

Dave... thanks for the kind

Dave... thanks for the kind words.

Rather than me trying to explain it, here's a quick 2 minute video on Carbon Fee and Dividend:

https://youtu.be/9oyguP4nLv0

Also, here a study from an economic modeling corporation that Congress trusts.

https://citizensclimatelobby.org/remi-report/

Additionally, here's an excellent TED talk (13 minutes) on a very similar plan.

https://www.ted.com/talks/ted_halstead_a_climate_solution_where_all_side...

Here's the bug today.... I have to pay to put my trash taken away. I cannot throw it on my neighbors yard or burn it. Today, the corporations that provide us the fuel that powers our world dump their "trash" (ie carbon emissions) into our all of our "yards" (ie our atmosphere). Because there isn't any accountability for it in the market, it creates side effects that we all pay for via our changing/warming world.

Skeptical

On the surface, the carbon fee and dividend sounds reasonable.

But experience suggests it also would increase the role of the federal government -- and add to a bureaucracy that is already over the top. Wouldn't monitoring and determining the fees due require government involvement -- not to mention determining how much of a "dividend" each consumer is due (and distributing those dividends)? Sorry, but I have little faith when it comes to the federal government efficiently managing any large program -- no matter how well intentioned it is. Add to that the massive amounts lost to fraud in any large program the federal government oversees. (Example: Medicare. Government sources estimate 10% lost to fraud -- about $60 billion annually.)

End government subsidies? By all means. But that means on both sides of the equation -- "green" subsidies as well as those received by carbon-based energy providers. (For that matter, the government should not subsidize any private enterprise I can think of. Picking "winners" and "losers" is not a function of government.)

Skeptical

The carbon tax and dividend seems like a reasonable concept.

But wouldn't it involve significant involvement by the federal government? Wouldn't a government agency have to determine which firms owe carbon tax -- and how much? Wouldn't that government agency determine which consumers are due? And see they receive the dividends?

Sorry, but I lack faith in the ability of the federal government to manage any large scale program efficiently (and without huge losses to fraud).

Don Casey Reply

Don - Thanks for taking time to ask your questions and state concerns you have. Here's my response.

Subsidies...

Citizens’ Climate Lobby supports the elimination of all energy subsidies once we have begun to correct the underpricing of fossil-based fuels. Fossil fuels subsidies from 2002-2008 exceeded subsidies to “renewable” projects by a factor of 5:1 . Over the next ten years, there are over $158 billion in potential fossil fuel subsidies (about equal to a $2.75 per ton of CO2 carbon tax). If the market could decide, it would pick newer technology/innovation. We should free it.

Administrative costs and distribution mechanism.....

CCL has a general philosophy that we will always support decisions that maximize the number of households receiving the dividend, maximize simplicity, minimize costs and provide transparency.

All the money collected from fossil fuel companies goes to a Carbon Fee Trust Fund managed by an Administrator (Treasury Department or private contractor). After administrative costs, the net funds constitute the pool for carbon dividends. Recipients are identified from existing tax records or through a special form for those who haven’t filed income taxes

CCL estimates annual administrative costs for the fee and dividend portion of our policy will be $5-6 billion per year. This estimate does not include the border adjustment. This is 7-8% of revenues in year one, 4% of revenues by year 3, and less than 2% by year 6. We considered startup costs, amortization period, annual operating cost, population growth, and emissions reduction rate. These administrative costs would be taken from program revenues, it pays for itself, so there is no additional cost to the federal government.

I think I am confused with

I think I am confused with the garbage analogy. My trash is the result of my consumption so strictly speaking carbon emission from my car is my trash, not the oil’s company’s. So really there should be no difference between oil industry and any other industry because only carbon emission during production should count… On the other hand, what if all those oil producers, upset with new tax, decide to stop making oil which, as you admitted, “powers our world?”

Also, another question: Why wasn’t “hurricane’s strength amplified by warmer oceans” in the past ten or twelve years?

Ilya Gutman Reply

Ilya... thanks for reading my article and for comments. I read your comments as: Where's the best place to administer the fee?

There are really three points (or a combination) in which to do this.

1. Upstream (at the coal mine, oil well, or fracking site)
2. Mid-stream (at the power plants or oil refinery)
3. Down-stream (at the gas pump or at the meter).

CCL has chosen the upstream point to collect the fee because it is simpler to administer (ie it's the most cost effective/efficient way to do it). As you move from upstream to down, the points in which you collect it multiply dramatically.

Regarding your concern about the producers... nothing to worry about there. The following companies publically support this type of plan: ExxonMobil, BP, Shell Oil.

I view these companies as energy companies - not oil and gas companies. They are in the business of providing energy. They are looking for stability in policy so they can make long term (ie 30 year) decisions in how to run their business and where to invest their capitol. They understand the risks of climate change and thus are publically advocating for the type of policy I advocate for.

Regarding your last question on hurricanes.... I would rather the conversation stick to the main point in the article - we taxpayers continue to subsidize fossil fuels that we taxpayers then turn around and bear the costs of.

This, in my opinion is fiscal lunacy and needs to be fixed. I believe that the Carbon Fee and Dividend is a great way to fix it.

Thank you for your response

Thank you for your response but I am still confused so if you don’t mind, I’ll ask more questions.

a. What is a power company? Is a nuclear plant a power company? Is Hoover Dam? They both have “garbage.”
b. If there were no consumption, fuel would not have been produced so again, it’s not their fault but ours.
c. Let’s say we collect those fees from BP and Exxon. They will raise the prices to cover it up, as you admitted, and we will pay it because there is no alternative. And then we will be reimbursed. So what is the point? How would this lead to any changes? Maybe that is why they support this?
d. If this concept applies to energy companies, should it apply to others? I mean if Ford and GM didn’t make cars, we would not be driving them thus polluting the air; if Delta and AA did not provide air transportation, we would not be flying thus, again, polluting the air; if farms did not grow cows and restaurants did not serve stakes, methane from cows did not go to air..
e. What about other types of pollution? Can this concept apply to them?

Re: Ilya's questions from 10/2

A: CCL is focused on energy providers the release greenhouse gases into the atmosphere.

B-E: I *think* I am following your logic here... I am going to address those points at one time because some overlap.

The free release of greenhouse gases into the atmosphere is a market failure. Where it's released or by whom doesn't matter. The most efficient way to fix the market failure is upstream.

When market distortions are removed, innovation and competition is sparked. Businesses will look to energy providers that don't have a fee placed upon them. Consumers will look for the best price so as to maximize their dividend.

The result is greenhouse gas emissions are reduced greater than any regulation ever could.

I hope this helps with some of your questions/concerns.

Thank you again for

Thank you again for responding but I still do not see the logic here. I understand that you focus on energy providers but they do not release greenhouse gases into the atmosphere – we do, as I pointed out. And my questions b. through e. are the ones underlining this. As for “market failure,” I still don’t see one nor can I see how government regulations can “fix” the market since the main advantage of the market is that it is supposed to be self-regulating.

Don, I agree totally.

Government should not be picking winners and losers with our tax dollars. Having the Government in charge of setting prices, who gets the carbon credits, pushing green energy while punishing all other forms of energy is a formula for more wasted money, fraud and corruption. Of course the politicians love it, more money, power and influence in DC. Having a 3rd party (Government) using other folks money (our tax dollars) awarding and fining private businesses, that we the consumer have a consensual 1 on 1 relationship with, is plain idiotic. Would you have a 3rd party, who will not pay for or use your car, buy it for you?? I wouldn't!!!
The Government is the 3rd party in our 1 on 1 private transactions with private businesses that we deem beneficial to us. Please stop trying to give the Government more power (already have way too much) to decide what products I can buy.

Joe Smith Reply

Joe.. thanks for reading the article and commenting. CCL totally agrees with you. The U.S. government should not pick winners and losers. However, we believe they government should create a level playing field that holds industry accountable (like a referee) for the costs that society bears - we don't have this today.

CCL believes, as do the energy companies I have referenced in other posts, that the Carbon Fee and Dividend is the best way to do this. Our solution is not based on credits. It's not based on regulations. It's designed to level the playing field and hold industry accountable which then unlocks competitions for newer technology/ways to power our lives and for existing energy companies to transform the way in which they provide us our energy.

Tim, too easy to over regulate

certain industries and not regulate others that fit the "green" model. Whether you call them regulations or credits, an elected official with ties to multiple lobbying groups (with millions to spend) in DC will be deciding for me what I pay for heating/cooling my house, what style car I drive and many other transactions I want to make for myself!
I don't trust either political party to do what is right for me. I don't belong to a monolithic group that needs Government "looking out for me"! I am an American citizen who can make decisions for myself.

A problem

There is a major problem with the inevitable border adjustment taxes - essentially, taxes on imports from petroleum exporting countries. (Without border adjustment, these plans just ain't gonna work.)

Take a look at the table at the following link, which shows the countries most reliant on oil exports, and the extent of their reliance:

Http://www.weforum.org/agenda/2016/05/which-economies-are-most-reliant-o...

What are these economies supposed to do to compensate for the impact of border taxes on the prices (of many products) internal to their borders ?

There is more to these plans than meets the eye on first glance, in terms of consequences.
I'm not sure we can force this on all our trading partners without creating serious "nuts and bolts" level problems for their economies.

I'm not against it, just saying there are some downstream consequences I haven't seen discussed so far.

Steve Titterud Reply

Steve... Thanks for reading the article and the thoughtful question. You are 100% correct. It's why CCL has thought this through.

Though many other countries have carbon prices in some form, none of these are a match for the physics of the climate, and none employ a border adjustment. Without a border adjustment, both American exporters and foreign importers would find themselves with an incentive to relocate production to countries with a more relaxed regime, polluting more for the same good. This is called “leakage”.

In the interests of the climate, it is therefore necessary to refund the carbon fee on goods exported and impose a carbon fee on carbon intensive goods imported. World Trade Organization (WTO) experts have written documents explaining how this could be achieved, and it is clear that the CCL proposal is consistent with the requirements these experts outline.

The U.S. should be the first domino that "makes" (due to our buying power) all other countries fall in line.

In summary: CCL’s policy includes a border adjustment on goods imported from or exported to countries without an equivalent price on carbon. This adjustment would both discourage businesses from relocating to where they can emit more CO2 and encourage other nations to adopt an equivalent price on carbon.

Climate Solutions Caucus Update

The climate solutions caucus is now up to SIXTY members. 30 Republicans and 30 Democrats. Minnesota is still looking for it's first Republican to join. The website to encourage them to do so is in my commentary. Please consider asking them to join.

Thanks Tim

Comprehension problems:
Some folks don't understand the commons, pollution put in the air in Seattle dosen't stay in Seattle.Pollution put in the Minnesota river by farm run off doesn't stay in Minnesota. They can't comprehend, that although we are affected by both Seattle and Minnesota pollution, we have no method to collect compensation and or say, we don't want to pay the costs of our neighbors pollution. So a challenge to some of the posters above is, OK you want the government out of the middle fine: How do we get compensated for air pollution generated from 5 different power companies between here and Seattle that are burning coal? Could they also provide what an equitable compensation formula would be? Could they do something similar for the farmers and the farm run off in the Minnesota river? Of course do this in the free market so to speak with out government intervention and or regulation, because that only costs money and provides no value!

I hate to say it but...

This looks like a smoke and mirror deal. All you'd be dong is collecting money just to give it back? The theory itself, that simply collecting taxes reduces sales is flat out faulty, specially when it comes to gasoline prices. Gas prices fluctuate wildly and people just keep buying gas. The info I've looked (on the CCL website) estimated that the actual tax per gallon would be something like .009 cents per gallon, frankly it's absurd to suggest that a .009% "tax" would modify behavior, more likely no one would notice it. If I didn't know better (and actually I don't) I would suspect that this is an industry backed proposal. Why would something that doesn't really increase the cost of producing carbon emissions reduce carbon emissions?

The "research" supporting this proposal was conducted by a private company using a regional economic modeling, that has not been vetted in peer reviewed research. The primary fault with the REMI model is that it typically assumes there are no costs associated with a given proposal. For instance this proposal appears to assume that it will cost nothing to collect and redistribute billions of dollars. This kind of modeling is typically used to promote projects like sports stadiums, with all the attending promises of jobs and stimulus, promises that universally fail to materialize.

Why does "everyone" support this, from industry to Republicans? The most likely scenario is that they've run the numbers and it will won't actually raise the cost of producing carbon emissions. At best it's does nothing, at worst the taxpayers will end up bearing much higher administrative costs than REMI analysis predicted.

This is a typical neoliberal non-solution that assumes we can tinker with a market of some kind and change the world without actually doing anything. Assumptions like this actually created the climate change crises in the first place, and they're unlikely to resolve it.

Re: Paul's comments from 10/6

I appreciate that you are looking at this skeptically. One thing I can fully tell you is that this is NOT "backed" (ie they didn't write it) by industry. However, they do support it because the price signal gives them certainty for long term (ie >30 year) planning on how they will compete in the business of delivering energy to us.

I appreciate that you took the time to look at the REMI results on the CCL website, but don't feel you can cherry pick one portion of the modeling. When looking at it holistically it accomplishes the following:

• CO2 emissions decline 33% after only 10 years, and 52% after 20 years relative to the baseline, $0/ton of CO2 case.
• National employment increases by 2.1 million jobs after 10 years, and 2.8 million after 20 years. This is more than a 1% increase in total US employment we don’t get without a carbon fee!
• 13,000 lives are saved annually after 10 years, with a cumulative 227,000 American lives saved over 20 years.
• $70-$85 billion increase in Gross Domestic Product (GDP) from 2020 on, with a cumulative increase in national GDP due to F&D of $1.375 trillion.

Regarding your concerns about administrative costs... I already addressed those in another reply to Don C on 10/1.

Regarding the peer review - I don't know if it was or was not. I will ask the person in our organization for the answer and reply back.

Answer to REMI peer review question

@Paul U

Here's the answer direct from the source: "The methodology underlying the REMI PI+ model is peer-reviewed."

Summary then is this: While our plan isn't peer reviewed the economic modeling methodology has been.

I really appreciated your thought on that because it helped me learn more about REMI as well.