Carbon Auction Revenue Recycling: How Should We Use The Money? June 22, 2007 Oakland CA.

Carbon Auction Revenue Recycling:

How Should We Use The Money?

June 22, 2007 • Oakland CA

CARBON FED

CITIZENS

FUEL COMPANIES

PERMIT FEES

DIVIDENDS

PUBLIC INVESTMENTS DIVIDENDS

PUBLIC

INVESTMENTS

CARBON FUND

PERMIT FEES

FUEL COMPANIES

INDIVIDUALS

PUBLIC INVESTMEN

TS

DIVIDENDS

How revenue recycling works

Per capita dividends have four purposes:

• To preserve consumer purchasing power

• To promote economic equity

• To create the right incentives

• To assure the durability of emission reductions

Per capita dividends also have a story…

• The atmosphere is a commons that belongs to everyone

• If the atmosphere has economic value, that value belongs equally to all

• Atmospheric dividends are thus not a giveaway, but a birthright

• One person, one share is the logical extension of one person, one vote

…and a successful precedent:

THE ALASKA PERMANENT FUND

$1,107 in 2006

QuickTime™ and aTIFF (Uncompressed) decompressor

are needed to see this picture.

…and a successful precedent:

THE ALASKA PERMANENT FUND



What Alaska did with its oil, California can do with its air.

Equal protection

ZOBEL v. WILLIAMS, 457 U.S. 55 (1982)

“When a state distributes benefits unequally,

the distinctions it makes are subject to scrutiny

under the Equal Protection Clause of the

Fourteenth Amendment.”

Preserving consumer purchasing power

• Higher fuel prices will costs households hundreds to thousands of dollars annually

• As the cap is lowered, prices will rise…

• …and dividends will rise in tandem

• Absent such dividends, California’s economy could tank

Promoting economic equity

• One person, one share is the fairest possible formula. Who can complain?

• Though all receive the same amount, the benefit to low-income people is greatest

• Universality assures the equity lasts (Social Security v. welfare)

Assuring durability of emission reductions

• If we lower the emissions cap 2% a year, it will take 40 years to reach our goal

• Without a system to protect consumers, higher prices will trigger a political backlash

• We will fail to cut emissions 80%

Creating the right incentives

• At the macro level, less pollution = higher dividends

• At the micro level, guzzlers lose, conservers gain

Other advantages

• Easy to administer

• Funds can be distributed monthly via a debit card

• One person, one share is a paradigm that can grow



Clean Air CardClean Air Card

Why not through taxes?

• The origin of the revenue is not through taxes — it is from charging rent for use of a commons

• The identity of the money will be lost

We want people to remember, when they pay $6/gallon at the pump,

that they will get some of that money back.

If they don’t remember that, they will not support carbon capping for long.

Equity

• Regressive impact of higher fuel prices

Political durability

• But there’s another reason for not pouring carbon money into the tax system — that money belongs to everyone equally, one person one share. If it flows into the tax system, it will not come out equally. Big companies and the wealthy will get the lion’s share. As commons defenders we need to promote the idea that common wealth belongs to all equally.

• Related to that is the fact that, once money enters the tax system, it loses its identity. No one remembers where it came from, it’s just part of the big black pot. We want people to know where their atmospheric income comes from so they will remember that they are co-owners. We also want them to remember, when they pay $6/gallon at the pump, that they will get some of that money back. If they don’t remember that, they will not support carbon capping for long.

• Rising fuel prices will trigger political backlash

• Emission reductions must continue >40 years

5 ways to recycle revenue to individuals

• Through tax system• Rebates on energy bill• Need-based rebates• Per capita rebates• Earmarked rebates

Thru tax system

• There are five reasons why per capita rebates (aka ‘lump sum payments’ or ‘dividends’) are preferable to other relief mechanisms.

• 1) Per capita rebates are the fairest and most transparent way to recycle revenue from permit auctions. Everyone will understand what the formula is and no one can say it is unfair.

• 2) Per capita rebates will build long-term political support for emission reductions. This is extremely important for the durability of the program, as rising energy prices will almost surely stir a backlash.

• 3) Equal rebates will benefit low-income households disproportionately.– See Trade-Offs in Allocating Allowances for CO2 Emissions, Congressional Budget Office, April 25, 2007.

• 4) Equal rebates create the right incentives. Thus, people who burn more carbon than average will pay more in higher fuel prices than those who burn less. If all receive equal rebates, carbon gluttons will lose while conservers gain. This is exactly the right penalty-and-reward system.

• 5) The carbon absorption capacity of the atmosphere is a gift of creation. If that gift has economic value, a portion of that value belongs to everyone. No one deserves more, or less, than anyone else.

• ALASKA CASE: Williams v. Zobel. 14th amendment Equal protection

• Politically risky

• Unlikely to be progressive

• EITC not universal

• Not linked to emission reductions

Rebates on energy bill

• Rewards large users rather than conservers

Need-based rebates

• Targeted to low-income households

• Requires means test

• Like welfare: bureaucratic and divisive

Per capita rebates

• Simple, fair and transparent• Universal • Creates right incentives• Maintains political support• Alaska model

Earmarked rebates

• Used for public transit or energy conservation

• Adds to emission reductions

Carbon Auction Revenue Recycling: How Should We Use The Money? June 22, 2007 Oakland CA.

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