New study: CFD much better for economy, households than regulations

By Jerry Hinkle

A number of climate policy proposals were offered by Democrats in 2020 that would achieve CCL’s primary objectives1 through a predominantly regulatory approach to reducing emissions. However, CCL has chosen to continue focusing our advocacy on a national carbon price. Though these policies can play an important complementary role in a comprehensive climate package, we continue to advocate for a carbon tax as the backbone of an ambitious US climate policy. As explained in this National Conference presentation (start at minute 37), the primary reasons for this are that carbon fee and dividend (CFD) is better for the economy, better for the poor, and will reduce emissions more quickly. It is also more likely to achieve bipartisan support, a feature which is essential for policy durability.

Regarding it being better for the economy, a study has just been published that explicitly quantifies the difference in economic impacts of a CFD approach versus a purely regulatory approach to reducing emissions. The analysis, produced for the Climate Leadership Council (CLC), compares the impact on GDP and household consumption from a CFD policy starting at $43/ton2 and increasing at 5% per year3 , and a regulatory policy consisting largely of clean energy, energy efficiency and fuel efficiency standards that generate the same level of emission reductions. The CFD policy presented in this paper is referred to specifically as the “Carbon Dividends Plan,” or CDP.

Study Results

The fundamental result of the study, completely consistent with the economic literature (pgs. 12-18), is that a scheduled carbon price reduces emissions at far less economic cost than a standard regulatory approach. Specifically, the GDP advantage in the CDP scenario over the regulatory plan steadily increases to reach $420 billion dollars in the final year of the study, 2036. This represents 1.5% of GDP in that year, and this economic advantage is expected to grow over time.

This economic cost advantage is also estimated in terms of household consumption per year (see graphic, below). Again, CFD results in greater consumption, and the difference increases over time to reach an average of $1,260 per household by 2036. This advantage would also continue to increase over time.

The study points to an additional advantage of a carbon price that was illuminated in a recent CCL Blog. A border carbon adjustment (BCA) can be coupled with an explicit carbon tax under WTO rules to protect the competitiveness of US producers and the jobs they create. In contrast, though a regulatory approach would raise costs on producers by, for example, raising energy costs, a BCA would almost certainly not be allowed under WTO rules in that case. Without a BCA, the US competitiveness of exporters would suffer and corresponding jobs would decline. This would further diminish the political appeal of a regulatory approach to emission reductions.

Why Regulations Cost More

A carbon price provides a consistent financial incentive across the economy to reduce emissions. Businesses and consumers have complete flexibility make reductions in a least-cost manner. In contrast, regulations tend to stipulate how to reduce emissions and when, and this may not be consistent with a “least-cost” approach. For example, a CAFÉ standard requires producers to sell more fuel-efficient cars. In contrast, a gas tax directly incents all to reduce emissions in a least-cost manner, so driving less and taking public transportation are also options. As a result, the same level of reductions are achieved at a fraction of the cost (see page 13). Similarly, a clean energy standard in the power sector does not provide the same consistent financial incentive to reduce energy use as a carbon tax does, so achieving the same level of reductions costs more (see page 15).

Summary Implications

At CCL, we trumpet peer-reviewed research that indicates revenue neutral carbon tax policies (like the Energy Innovation and Carbon Dividend Act) have “roughly zero impacts on the overall growth of the US economy,” so that the enormous climate and health benefits from the policy come at little to no economic cost. Though certain regulations can have a complementary role to play in reducing US emissions consistent with science-based targets, if we relied on regulations for the bulk of the reductions, the economic cost of the policy would be significantly higher. This study makes that clear. The incoming Congress may yield a wide range of climate proposals, and some may meet CCL’s primary objectives. During this period, imposing a predictable carbon price will remain the focus of our advocacy as the policy that, overall, is best for the economy and households.


1. CCL’s primary objectives for climate policy is that it greatly reduces emissions while not harming the bottom two income quintiles.

2. The fee starts at $40/ton in 2017 dollars, or $43/ton in current dollars.

3. There are two key differences between the CFD policy simulated and HR 763 for purposes of the modeling exercise. First, this carbon price starts higher ($43) but grows more slowly (5%), so that it reaches $94 by 2036 whereas HR 763 reaches $165 in 2036 if it begins in 2021. Second, this proposal gives a full dividend share to all those under the age of 19, whereas HR 763 gives them a half share. The two policies are sufficiently similar, and the analysis results sufficiently strong, that the conclusions drawn from this study can be assumed to apply to HR 763 advocacy.

Jerry Hinkle is a research coordinator for CCL.

The post New Study: CFD much better for economy, households than regulations appeared first on Citizens' Climate Lobby.

Time for Truth-telling

April 2020

“We have been thinking that there is no such thing as an objective truth, that we create our own truths, or the culture or those in power create truth for us. We have been putting quotation marks around “reality,” assuming that it is infinitely pliable to our will, whether through technology or through our self-identifications and mental constructions. But the coronavirus is an objective reality breaking in on us that is not a social or personal “construction.”

We have been used to feeling in control. We have felt secure. We have felt free to do whatever we want. Not any more.”

----“The Postmodern Epidemic,” by blogger Gene Veith

Covid-19 has disrupted daily life, across the nation and across the globe. Events move so quickly we can hardly keep up. The media, covering almost no other news, sends us a constant, usually negative, barrage.

But, as many have said, sheltering in place puts the brakes on our usually rushed lives and can allow us time to read and think about things we might otherwise not have time for. We realize what we value, our health, the safety of our loved ones, our future together.

Amid the seriousness of our current predicament we must remember that the height of the danger will pass. Outside predictions are for a year or two. This may seem like an eternity now when we are feeling cabin fever after being homebound for a week, but in the scheme of things it is a droplet in time.

We will develop treatments and vaccines and our economy will recover. We will mourn our dead, but life will go on. This is not true for climate change. Its disruption will last for centuries if not forever.

Now is the time to put the pandemic into perspective by looking at how we can prevent this even greater catastrophe.

Clearly there are major differences between corona virus and climate change:

· Covid -19 was upon us in weeks. Climate change is appearing slowly, over decades, making it easier to ignore, procrastinate and deny.

· Given enough time, the danger from the virus will decrease. Climate change will get more severe the longer we avoid responding to it.

· In a worst case scenario, deaths from covid-19 might number in the millions. Death from climate change might be in the hundred millions as earth’s living areas and food-producing capacity diminishes.

If “nothing focuses the mind like a hanging in the morning,” maybe we can use this health crisis to focus our minds on this greater, upcoming crisis.

The corona virus has already taught us lessons we can apply to our fight against climate change. We can no longer deny that:

· We need to pay attention to science rather than distraction, denial, or wishful thinking.

· Catastrophic change in the natural world can and does occur. Nature does not always nurture. When it turns its power against us, we can be overwhelmed.

· Such change can wreck havoc on our economy and drastically change daily life in ways we never imagined possible.

· Nature’s power is beyond any individual’s ability to withstand. To protect ourselves and those we love, must act as a community.

· When some are risk, all are in danger. Nature may first show its power in hot spots in foreign lands, but unless we respond in timely ways, all will be affected.

· Some problems are so big that federal action is essential. Cities and states cannot handle it by themselves, and international cooperation is necessary.

· If some sectors are slow to act, everyone must do what they can with the choices they have the power to make. We must be pro-active rather than reactive.

· Everyone needs the basics: health, housing, food, clean water, and clothing. Access to these essentials is necessary in times of distress if we are not only to have a viable economy but to prevent chaos and violence.

· In extreme times, we must guard our food supply. That means protecting our agricultural land, growers, farm workers, transport people, and grocery store employees

And very importantly, we have learned that time is crucial. We need to prepare for climate change before the need is obvious. We need to initiate prevention activities before they seem necessary. It is better to over-react than to under prepare.

Covid-19 proves the government can act quickly when our elected leaders and the general public recognize a crisis. Suddenly we have bipartisanship. This shows we can act quickly on climate legislation as well. Fortunately, a bill is ready.

Several climate-related bills have been introduced in Congress attacking specific aspects of the problem. The one with the most support is House bill HR731, the Energy Innovation and Carbon Dividend Act (EICDA).

Choosing one specific plan is not to suggest this is the only thing we can do, or the only thing we need to do, or the only thing that will work. But it is a plan ready for implementation . It is focused, transparent, fair—small enough to actually implement; large enough to make a noticeable difference.

The EICDA puts a price on the carbon dioxide content of fossil fuel starting at $15 per ton and rising $10 per ton each year. Coal, which releases the most CO2 on combustion would pay the heaviest fee while cleaner natural gas would pay less. Although clean fossil fuel would have an advantage initially, its cost too would rise over time and discourage its use.

It exempts fuels used by agriculture and the armed forces.

Revenue from the carbon fee is returned to US citizens in equal amounts. Payments to low income households, which typically use less energy, would represent a larger change in income compared to high income households.

Eighty percent of families would receive monthly checks equal to or larger than the increased amount they would spend because of increased energy prices. For most middle income homes it would be a wash. Those with large incomes who choose a high-energy lifestyle with jet travel, large homes and low-mileage vehicles would pay a small percentage more for energy than they receive in dividends.

The biggest impact would be on business and industry. They can pass part of their increased expenses on to their customers. But to remain competitive, they will need to reduce energy costs. This will push the entire economy away from CO2-producing fuels.

The change will be predictable, allowing both households and companies to plan ahead. It will promote substantial change but not a jolt to the market. As the conversion is implemented, dividends will gradually decrease as cheaper clean energy becomes standardized.

The mechanism for sending checks to households is already in place through the IRS and could be quickly implemented. As treasury secretary Steve Mnuchin said recently, the government could get checks to people “in a couple of weeks.” If the dividend were wrapped into other government payments such as Social Security, veterans’ benefits and SNAP cards, costs of distribution would be very low.

In reality, placing a fee on fossil fuel as it enters the economic stream is simply asking oil, coal, and gas producers to pay the full cost of production.

Burning fossil fuel is not only bringing on climate change, refineries foul the air we breathe leading to respiratory disease and increased cancer. Fracking pollutes our drinking and irrigation water. Risks posed by oil trains and pipelines endanger the land and cities they pass through, including nearby Davis.

Would you allow us to spew our sewage and garbage into the street and expect you to clean up after us? Such is the power of Big Oil that not only have we been putting up with their waste, we pay them billions each year to continue the practice. This bill ends subsidies to fossil fuel.

Liberals might object that low income households should get a higher proportion of the income. There are two counter arguments.

First, if everyone gets a regular check, everyone feels a personal benefit from the program and supports its continuation. Because of the lobbying strength of the fossil fuel industry, it will need a broad base of support similar to that of Social Security.

Second, basing the dividend on income levels would give rise to arguments that the dividend is a welfare program making it vulnerable to future cuts and diversion of funds into other government programs. The goal here is to impact business and consumer behavior by putting a price on carbon; not to influence tax policy. That's for others to debate.

This change is not without cost. The carbon fee would be passed on to consumers, so prices would rise. Everything made using fossil fuel would become more expensive. Energy to heat and light our homes and businesses, energy to run our cars, and the factories that make and transport everything we buy. Every advanced economy runs on energy.

Economists agree that the best way to reduce the use of something is to raise its price. As the carbon fee raises the price of fossil fuel, alternative clean fuels become more attractive. Their development and price reductions through scaling up reduce their prices . Models suggest that in only 12 years, CO2 emissions from fossil fuel would be reduced by 40%.

Rep. John Garamendi, who has a strong history of support for environmental legislation, has not yet signed on as a co-sponsor of this bill. He needs to do so. Perhaps messages from constituents idled by the corona virus would encourage him to act.

Governor Newsom predicts we could have a 56% infection rate in eight weeks from the corona virus. If we had implemented massive national testing when it first appeared, we could more likely have managed it until we develop a vaccine. Schools might be open, jobs saved.

CO2 measures the invisible presence of the climate change virus. At 415 ppm, we have a dangerous fever. Wildfires, Arctic warming and rising seas are the diagnosed cases. Species extinction and human death from air pollution, drought and flood are our current climate change mortality rate.

We already have “vaccines” against the climate change we know is coming. Will we use them?

Let’s let the corona virus teach us a lesson .

Beth Robbins

Yolo Citizens Climate Lobby

April 2020

Carbon Pricing + Border Adjustment = Solution

Some of the argument against the carbon fee and dividend approach is that the money can't be spent by the government on favored programs. This argument whiffs two ways. First, returning money directly to households (actually front-loading the dividend) makes the program politically feasible. But the most important aspect is that a carbon price is simple to use for setting up border adjustments to effectively force all major trading partner countries to adopt the same level of pricing. Whatever we do in California or even the entire U.S. will not solve the problem if other countries continue to increase their CO2 emissions. Getting an internationally enforceable program is critical to actually solving the global warming problem.

Rob Beggs

Yolo Citizens Climate Lobby