The Energy Innovation and Carbon Dividend Act puts a price on carbon-emitting fuels, at the source, and delivers all revenues to households as monthly dividends. With a steadily rising fee and steadily rising dividends, the plan sends a clear, predictable price signal to producers and is projected to reduce greenhouse gas emissions 90 percent by 2050.
On November 27, 2018, the Energy Innovation and Carbon Dividend Act became the first bipartisan carbon tax bill to be introduced in the U.S. House of Representatives. When it was introduced in the Senate three weeks later, it became the first bipartisan carbon tax bill to be active in both houses of the U.S. Congress. With a new Congress just sworn in, it was reintroduced in the House of Representatives on January 24, as H.R. 763.
Bipartisan carbon fee and dividend legislation is now before three committees in the U.S. House of Representatives, setting a new baseline for conversations about carbon pricing in the United States. At the time it was first introduced, The Hill observed:
The bill will likely be a major marker of where lawmakers from both parties can agree on tackling climate change.
Mark Reynolds, executive director of Citizens’ Climate Lobby, has noted:
Polling shows that more and more Americans are making the connection between climate change and disasters that claim lives and property. As public pressure increases for Congress to take action, the Energy Innovation and Carbon Dividend Act provides a solution that is both effective and family friendly.
Its simplicity and fairness are the reasons this plan meets all of these aims.
The pricing mechanism is a fee on carbon-emitting fuels, like coal, oil or gas, assessed at the mine, the well, or the port of entry. Being assessed upstream, the fee is administratively simple (only a few thousand entities pay this tax) and efficiently covers the whole economy. The fee starts low, at $15 per metric ton of CO2-equivalent GHG emissions, and rises steadily at $10 per ton each year.
Carbon dividends are monthly checks or direct deposits to households, allocated in equal shares. Dividends will generate an increase in real disposable personal income, while shifting the cost of carbon-related externalities from consumers back to the businesses that generate them.
Rep. Ted Deutch, who co-founded the bipartisan Climate Solutions Caucus and led the introduction of the bill in the House of Representatives, describes the bill’s bipartisan appeal:
Our plan, to put a price on carbon and return the net revenue back to the American people, offers our Democratic and Republican colleagues an effective approach to significantly reduce carbon emissions without shifting the burden to the American people.
To create a level playing field for energy intensive trade-exposed industries, a border carbon adjustment is applied to goods from countries that do not assess a comparable carbon price. This allows trading partners the better deal of setting their own carbon prices at home.
If emission targets are not being met after 10 years, the Energy Innovation and Carbon Dividends Act directs the EPA to regulate those emissions. The bill does not impact regulations on any other pollutants, such as auto mileage standards, water quality or environmental protection measures.
A steadily rising upstream fee with full revenue return is operationally distinct from a downstream consumption tax or a cap and trade system:
- A consumption-based carbon tax applies pressure most directly to consumers; producers receive this signal only indirectly.
- A cap and trade system applies pressure most directly by instituting a regulatory cap on allowable GHG emissions.
- With both an upstream fee and a household dividend steadily rising, a carbon dividends plan applies pressure directly to producers.
This allows the price to get much higher, sending a steadily intensifying market signal that future investments should move to avoid the cost of carbon emissions. Incomes rise, emissions fall, and the Main Street economy keeps consumer spending and new capital flowing to new, cleaner business models.
This carbon dividends approach meets all 6 of the FASTER Principles:
- The household dividends ensure Fairness to consumers and to Main Street enterprise.
- Border carbon adjustments allow for careful verifiable Alignment of policies and objectives across borders, while also allowing alignment between emissions reduction goals and economic development policy.
- The steadily rising price and intensifying internalization of externalities provide predictability and Stability at the macro and micro scales.
- The upstream fee ensures maximum Transparency, applying the price to every molecule of GHG-emitting fuels in circulation.
- Because the Main Street economy receives a steadily rising infusion of new household spending, entrepreneurial competition ensures Efficiency and limits cost to the wider economy.
- By ensuring the whole economy has an incentive to shift to low-carbon business models, emissions can be cut 90% by 2050, ensuring Reliable environmental integrity.
A diverse group of world-leading economists and Nobel Laureates recently endorsed carbon dividends as the most fair and efficient way to price carbon, in a joint statement published in the Wall Street Journal.
For more information and a growing list of co-sponsors and supporters, go to EnergyInnovationAct.org
This article was first published by the Carbon Pricing Leadership Coalition.