Cap and dividend

Cap and dividend is a plan under which permits to emit carbon dioxide are auctioned, and the revenues go directly back to citizens in the form of dividends, distributed equally, rather than to the government. The plan is modeled after the Alaska Permanent Fund, which pays equal dividends to Alaskan residents from the proceeds generated from state oil leases.

As in other forms of capping, such as cap and trade, carbon emissions prices will rise as the cap declines, spurring private capital to flow into alternatives such as wind and solar power. The difference is that the dividends should rise along with the carbon prices, easing the impact on consumers. It is also argued that such direct dividends to consumers would help avoid market distortions and manipulations seen in other carbon trading programs, where permits are traded amongst industrial polluters and financial institutions without public participation.

The CLEAR Act
A cap and dividend bill, the CLEAR Act has been proposed by Sens. Maria Cantwell (D-Wash) and Susan Collins (R-Maine), and can be seen as an alternative to financial market carbon trading approaches advanced by bills such as the Clean Energy Jobs and American Power Act. The CLEAR Act takes the "trade" part out of cap and trade and returns most of the revenue raised by a bill back to consumers in the form of a dividend. A typical family of four would get about $1,100 annually in payments, according to the senators. The money would be raised by requiring companies extracting fossil fuels from the Earth to purchase "carbon shares" in a full auction for each ton of carbon they sell, generating carbon fees. The expectation is that those companies, such as coal-mining companies or natural gas producers, would pass on the cost to buyers and everyone else in the economy as a signal to move to cleaner sources of energy. The proposal was introduced in December 2010 and is supported by small environmental and community groups such as the Chesapeake Climate Action Network, and opposed by many corporations and businesses, who have been lobbying heavily against it.

Dividend Supporters
The dividend proposal is favored by NASA scientist James Hansen as a more effective alternative to a 'cap and trade' system, although he advocates carbon fees over pollution permits: "place a uniform rising price on carbon, collected at the fossil fuel source – the mine or port of entry. The fee should be given to the public in toto, as a uniform dividend, payroll tax deduction or both. Such a tax is progressive – the dividend exceeds added energy costs for 60% of the public."

A carbon fee and dividend approach is also advocated by U.S. Environmental Protection Agency lawyers Laurie Williams and Allan Zabel: "The purpose of carbon fees is to insure that, within a set time period, the price of fossil fuel energy exceeds the price of clean energy from sources such as wind and the sun."

The Citizen's Climate Lobby (CCL) has proposed enactment of the Carbon Fee and Dividend Act of 2010. In support of the proposal, CCL organized the Million Letter March.

Related SourceWatch articles

 * Carbon fees
 * Carbon trading
 * Emissions trading
 * Environmental justice and coal
 * Electric Utility Cap and Trade Act
 * External costs of coal