Carbon Fee and Dividend. Its Time Has Come

Carbon Fee and Dividend. Its Time Has Come
Posted on August 4, 2014 | Rolly Montpellier | Written on August 4, 2014
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Author's Note:

Author's Note:

In the United States, there is a rising tide of interest in a revenue-neutral carbon tax for pricing carbon. In Canada, no attention is being given to a national tax on carbon. This has to change.

There is one thing stronger than all the armies in the world, and that is an idea whose time has come. According to Joseph Stiglitz, the world-renowned global economist and Columbia University professor, putting a price on carbon is a no-brainer. “I believe that over the long run we will have to have a carbon tax, the world will come around to this,” says Stiglitz.

The World Bank stresses the urgency of pricing carbon in our efforts to reduce emissions. It supports recent attention on carbon coming from around the world:

• Carbon pricing is gaining attention as a way to address climate change. About 40 countries and more than 20 cities, states and provinces use carbon pricing mechanisms such as emissions trading systems and carbon taxes.
• A price on carbon – where polluters pay for the damage their emissions cause - helps shift the burden for damage from greenhouse gas emissions back to those who are responsible for it and who can reduce emissions.
• Business leaders and oil executives are beginning to speak in favour of carbon pricing and investments.

A recent study (REMI Study) by the Regional Energy Development Inc. (commissioned by Citizens’ Climate Education Corporation and Citizens’ Climate Lobby) revealed a convincing picture.

The US-based study examined a tax on the carbon dioxide content of fossil fuels. The tax would start at $10 per ton, increasing by $10 per ton each year. Revenue from the tax would be returned to households in equal shares as direct payments.

Under this approach, the REMI study found that recycling the revenue back into the economy would add 2.1 million jobs over ten years. Improvements in air quality would save 13,000 lives a year. Emissions would decline by 33% after 10 years, and 52% after 20 years. The size of the monthly dividend for a family of 4 with two adults in 2025 = $288. Electricity prices would peak in 2026 and then start to decrease.

TheGuardian reports that Citizens’ Climate Lobby advocates for the fee and dividend approach for two main reasons:

“First, it’s probably the simplest carbon pricing option. The carbon fee would be implemented at the point of entry (well, mine, or port), and we already have a system in place to return the dividend to citizens during annual tax filings.”
“Second, it’s probably the most feasible option to implement, from a practical and political standpoint. The dividend offsets the cost of the carbon fee for most people, so there is minimal financial impact on the public.”

In the United States, there is a rising tide of interest in a revenue-neutral carbon tax for pricing carbon. “A number of prominent politically conservative figures support the carbon fee and dividend system,” says TheGuardian. In July 2014, George Shultz (former Secretary of State) while participating in an M.I.T. webinar on carbon pricing and taxing (alongside other prominent conservatives) was strongly supportive of a revenue-neutral carbon tax.

In Canada, where the Harper government has made the exploitation of the Tar Sands its top priority, no attention is being given to a national tax on carbon. Yet British Columbia’s revenue-neutral carbon tax, implemented in 2008, is a success story - the economy is doing well, emissions are down, and citizens have seen no net increase in taxes.

Finally, a carbon tax that makes sense. Carbon Fee & Dividend is truly an idea whose time has come not only for the United States but also for Canada.

About The Author


I agree, a revenue neutral carbon tax, or carbon redux as I like to call it, is a no-brainer now that climate change has obviously arrived and its clear action needs to be taken to reduce the affects of too much CO2 in our atmosphere.

Not only will a person's income tax be reduced but so will the amount of greenhouses gasses they consume, if they are smart. People who reduce their carbon consumption will end up 'net' ahead at the end of the day.

As the Green Party of Ontario explained in the 2007 provincial election... its better to pay for what you burn than pay for what you earn... because who wants to be punished for working hard? I'd rather be rewarded for working hard and doing my part to contribute to the overall improved health of my community and the people living in it.


I agree. Carbon Fee & Dividend is a simplified form of carbon tax and for that reason appears more trustworthy. It is not optimal, however, because achieving revenue neutrality through a menu of tax measures can better incorporate ways to avoid the regressive nature of anything flat.

In "Tax is not a four letter word" (Himelfarb & Himelfarb, editors, 2013) Stéphane Dion contributes a thoughtful chapter on carbon taxes and how it can become good policy.

Peter Easton

It seems to me that, as regards climate change, which has happened, is happening and will continue to happen since all climates vary, there are only three possibilities: 1) the climate variation being observed is entirely from natural causes, with no human-induced effects; 2) the climate variation being observed is partly due to natural causes, and partly (degree to be determined) by human activity; or 3) the climate variation being observed is entirely caused by human activity. If the first, then there is nothing to do, since human activity is irrelevant. (3) implies that natural climate variability stopped dead in its tracks the first time humans burned carbon-containing material, a highly dubious proposition. This leaves the second possibility. The degree to which a given country undertakes mitigating measures is surely related to the degree to which it adds to the carbon cycle (the thesis that industrialized countries need to do the most since they were the ones that started contributing CO2 to the atmosphere is a moral argument, not a scientific one). Human CO2 emissions are ~2-3% (.02-.03 in fractional terms)) of the natural carbon cycle, and Canada's emissions are ~2% (.02) of that, or, in other words, ~.04-.06% (.0004-.0006). Notwithstanding the hype regarding oil sands emissions, Canada is simply not a significant contributor to human CO2 emissions and given the rounding-error nature of our contribution, a dime spent in Canada on mitigation is a dime wasted - the only logical, economically sensible effort should, therefore be entirely on adaptation, since that would address the issue irrespective of which of the three possibilities turns out to be real. (The June 13, 2014 edition of Science, page 1221 has an article stating that the current deterministic climate change models have no predictive value - the first such article I have seen in a peer-reviewed journal).

Moreover, as the Science article I mentioned above notes, the predictive value of current deterministic climate models is not going to improve. In order to halve the current size of the grid used by these models (currently 100 km/side) would require an order-of-magnitude increase in computer power. While exaflop computers capable of this are on the horizon, it would take 100 MW of electricity to run one.