Full Title: Why Fee and Dividend Will Reduce Emissions Faster Than Other Carbon Pricing Policy Options
Author(s): Daniel H. Miller and James E. Hansen
Publisher(s): Response to the Request for Information from the United States House of Representatives Select Committee on the Climate Crisis
Publication Date: November 1, 2019
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The Fee and Dividend carbon pricing policy is the single most effective way to quickly and dramatically reduce greenhouse gas emissions. Human-caused emissions of carbon dioxide (CO2) and other greenhouse gases (GHGs), primarily due to the burning of fossil fuels, is causing the Earth to heat up, resulting in dangerous changes to the climate system. To minimize future impacts, GHG emissions must be lowered dramatically and urgently. To do so, financial incentives must be aligned with climate realities by “putting a price on carbon.” While there are many carbon pricing policies being considered, only Fee and Dividend has all the essential characteristics required for a successful policy.
With a Fee and Dividend carbon pricing policy, a rising fee is placed on the carbon content of fossil fuels and fossil fuel companies pay the fee where the fossil fuel is extracted or imported (at the well, mine, or port of entry). 100% of the money collected is distributed as a dividend to every legal resident on an equal basis, so a poor person and a wealthy person receive the same check every month. To protect American businesses and encourage foreign governments to implement carbon pricing policies, a border carbon adjustment duty is placed on imports coming from countries without their own price on carbon.
The Fee and Dividend policy will reduce emissions faster than other carbon pricing policy options because it is the only one that has the essential characteristics required of a successful carbon pricing policy: (1) the carbon fee is known in advance, keeps rising, and is not volatile, and (2) because all the money collected is returned to the public, the fee can quickly grow large enough (>$100/ton-CO2) to have a big impact on reducing emissions. Other advantages of Fee and Dividend are that it is simple, fair, transparent, and does not hurt the poor or middle class. In fact, Fee and Dividend is antiregressive (i.e., it is progressive) and almost all poor and middle-class households increase their net income under the policy. Therefore, the policy directly promotes environmental justice. The Department of the Treasury estimates that the bottom 70% of households will earn more from the dividend than they pay in higher prices due to the fee. Economic studies show that Fee and Dividend will, over 20 years, create 2.8 million jobs, grow GDP by $1.375 trillion, while reducing emissions by more than 50%.