Thursday, December 31, 2009

Cap and Dividend: the romantic solution?

Happy New Year's Eve!  Since many of you will be ringing in 2010 with alcohol tonight, I highly recommend you read the dhaba's earlier post about personal responsibility and beer drinking. And start thinking about your Green New Year's Resolutions--I'll be asking for those soon.  If you haven't already, don't forget to check out the prizes on offer in our Winter Subscription Drive here!  Now back to business.  

On Tuesday, I wrote about some of the problems with Cap and Trade.  If that system wouldn't work, what might?  I've always leaned toward a good old fashioned carbon tax, but I've been learning that there are some serious problems with that approach.  For one thing, a carbon tax is not a cap, and most taxes that have been proposed are far too low to significantly change the behavior of polluters.  How high would a carbon tax need to be for us to get to sustainable levels of consumption and pollution?  That is difficult to predict--which is one of the problems with this approach.

In place of Cap and Trade and some kind of tax on carbon, the good people over at the Dogwood Initiative suggest a plan popularized in the US by a fellow named Peter Barnes.  It's called Cap and Dividend.  Under this system, governments would cap emissions and then auction off pollution permits to businesses that need to pollute, like factories and power generating plants.   The proceeds from the auction would be divided equally and paid back to the citizens of the country in the form of a dividend, and would help insure on-going political support for what will have to be a difficult transition to a low carbon economy.  More sustainable, efficient businesses would require fewer permits to operate; old inefficient coal plants, for example, would quickly become uneconomical.

Of course, any plan that asks India and other developing countries to Cap at a much, much lower level than the rest of the world is fundamentally unfair; that's why I said Tuesday that the developed world needs to consider making very deep cuts (90%) by 2050, in order to open make room for us to develop sustainably.  My guess is that India is a very long way from accepting any kind of absolute emissions cap; at least for the next decade or two, a more aggressive effort to lower our emissions intensity  (aka raise our energy efficiency) is probably a more realistic and fair goal.

But what about Cap and Dividend in the rich countries?  Would it work?  Well, it has the advantage of being simple.  I asked my better half what she thought about it, and she raised this issue: if you just give people money, wouldn't they just consume on more stuff?  And she's right!  The only thing I could say was that Cap and Dividend would raise the price of carbon-intensive things and energy a great deal, so even though people would still spend their dividend, the new prices would drive them to spend on more sustainable things. "Like solar water heaters!" I said. But I could see she wasn't buying it.  

So I tried a different tact:  "Under Cap and Dividend," I said,  "taking public transportation to go out to dinner or the theater--or to buy locally grown bouquets of flowers-- would become much less expensive than buying cheap, ugly products made of imported plastic!  Cap and Dividend is the romantic solution!" Well, it still wasn't enough to convince my wife completely, but I think I made some progress.

She suggested you would at minimum need to invest some of that dividend publicly, in things like better parks and public transportation, more efficient buildings, etc.  And you know what, I think she's probably right.  I don't fully trust the market to do the needful on this one, even with strict limits on emissions.  Which is part of the objection to Cap and Dividend raised by Joseph Romm (linked below).  But unlike Romm, I don't think Cap and Dividend is fatally flawed, just that we'll need to fine tune it.

One last word: I'd suggest that a good portion of the dividend in the rich countries go to help the rest of the world adjust to the problems caused mostly by the pollution produced by the rich countries.  Over the past 150 years, the US and Europe has been filling the atmosphere with unsustainable levels of green house gases.  Whether they meant to or not, they have caused a lot of problems; the least they can do is to pay their fair share for those damages.

For those of you who want more information about Cap and Dividend, here are some good links: 
A three part series from the Dogwood Initiative:

For balance, here's a critique of Cap and Dividend by Joseph Romm (with a rejoinder from Barnse):

See you next year!


  1. Interesting approach. I agree with your conclusions that rich countries would need to "invest" in helping developing countries catch up, but the cynic in me doubts any real change or reform will ever happen unless we find a way to break the back, and thus the stranglehold, of our global corporate rulers. This is a huge obstacle here in the US and it surely must be in other parts of the world as well. Happy New Year!

  2. The more I see, the more I think there iis no way we will solve this problem without a massive, international movement of people for sustainable justice. It's not going to be easy, but what other choice to we have? Great to see you here.

  3. informative series on cap and trade. do take a look at comparing cap and trade and carbon taxes.

  4. thanks, Suvrat; I look forward to checking out that link.

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