Fee and Dividend: A Key Climate Solution

(3 minute read)

In a previous post, I said that to address climate change we need to make it socially unacceptable to do certain things. However, if we put a high price on carbon, those who drive petrol SUVs or fly long haul will be contributing to society through extra taxes. There’s no longer any need for guilt or shaming, something that many (I suspect most) would welcome.

To tax carbon, a government simply needs to collect money every time fossil fuels are imported into the country or taken out of the ground. Also, to be fair, they also need to tax all imported goods coming from countries that don’t have their own carbon tax. (Where rich countries are taxing imports from poor countries that have done little to cause climate change but will be hit harder then the proceeds could be used to fund clean energy projects in those countries.)

Low-carbon activities on average cost about the same as high-carbon activities in the long term, but this varies and some of the low carbon options (such as solar panels or electric cars) require most of the cost right at the start. People (and businesses) prefer to continue doing what they are used to until they have a real clear incentive to change. I suggest that incentive needs to be to make the low carbon option the cheapest by a clear margin in almost all cases.

A high carbon tax could in theory be used to fund any number of worthy social programs. However, such policies would never get support from right wing governments or people. Therefore, I think a carbon tax should probably be “revenue neutral” in places that already have high taxation (e.g. the US, UK and Europe).

There are at least two ways to achieve this. The first is that you reduce or cancel other taxes, such as income tax and VAT/sales tax. A slight downside is you’d have to be constantly tweaking the income tax and sales tax every year or two to make it balance out the carbon tax income which would rise at first as the carbon tax gradually increases, and then decline as society decarbonizes.

I’ve come to prefer a fee and dividend approach instead. Under this system, the proceeds of the carbon tax are simply sent back to the people (which arguably makes it not a tax at all). If in a country of 50 million people the fee raises £10 billion in a month then every person (whether rich or poor) gets £200/month. Getting money land in your account every month is psychologically pleasing and will create positivity around the fee.

The rich lose and the poor win on this plan but that’s fair since rich people are causing more climate change.

In simple terms, under a fee and dividend plan, you have more money, but the price of almost everything is higher. In particular, gas, petrol, diesel, concrete, steel, flights and meat would become significantly more expensive.

Some carbon taxes already exist, but are too low, only cover some countries, and typically only cover certain sectors (sometimes electricity only). Many economists and policy experts seem to favour a tax of about £100/ton of carbon dioxide (€115 or $138) because they claim this will cut emissions to keep the maximum warming to about 2C above pre-industrial levels. However, given the uncertainty, and how serious climate change is, and the fact that say 1.7C is greatly preferable to 2C, I personally would prefer between £200-£500/ton.

Surveys suggest that this policy would already have popular support. Most economists support it. Governments need to think carefully about which groups will lose out (perhaps taxi drivers and goods delivery companies for example), anticipate how they will react, and listen and negotiate with them in advance of launching the policy. In my view, the mistake made by Emmanuel Macron in France was to go ahead with carbon taxes without sufficient public debate and consultation and support, and without the benefit of the dividend.

If you decide you support this policy, please tell your local politician and vote accordingly in the next election.

Here is a good talk on fee and dividend (13 minutes).

Fee and Dividend: A Key Climate Solution

Changing the Social Contract

Social norms

Some things are not considered acceptable, for example:

Cigarette smoking a few paces outside of a school entrance as many children walk by.

Farting/belching loudly without apologising or at least commenting on it.

A mobile phone ringing during a wedding ceremony.

Urinating near to other people anywhere other than a bathroom.

Persistently interrupting in conversation.

Talking about most sexual matters in front of children.

If we consider these actions, it is beyond dispute that there are some situations where any person (not just an authority figure) can gain strong support by impinging on another´s freedom by firmly asking that person not to do something perfectly legal.

Some of the actions on the above list arguably do not even cause anyone any harm, unless that is just emotional annoyance. So can we put some new things into the “socially unacceptable” list that actually cause harm?

New social norms

When someone buys a brand-new polluting petrol or diesel SUV, I would like to live in a world where they feel embarrassed to own it, and when they meet up with their friends, park it hidden far away and don´t mention it to anyone rather than show it off. When someone comes back from their annual vacation in the Caribbean, perhaps they don´t share photos on social media and try to avoid talking about it for fear of criticism. When someone orders a steak from a factory farm, I´d like if it they did so almost apologetically and felt the need to explain to their friends at the restaurant table that they do honestly eat mostly vegetarian meals, but they just fancied steak today.

This is not a radical change but the same world we already live in, just with new socially unacceptable (climate change causing) things added to the existing list. Surely causing knowing, pointless damage to the biosphere on which civilization depends should draw more ire than a harmless, accidental mobile phone ring?

Masks and cigarettes

Social norms do change over time, for example unmarried sex. It´s even possible for them to change quickly if there is enough of an urgent need – e.g. mask wearing in a pandemic.

When the first people spoke in favour of mask wearing, and criticised their friends at a social gathering for not wearing masks (say in February 2020 in the UK or Europe) I imagine that they were told to stop “telling others what to do” when there was no law mandating masks. And yet a few months later, in many places, everyone would have supported them for saying the exact same thing, with insignificant change in scientific knowledge in the interim.

Similarly in the case of cigarette smoking. Someone criticising others publicly for smoking in a pub decades ago would have met with derision, laughter or anger and told to let each person live their live as they see fit.

To conclude

So, what we need is a minority of trend setters who are willing to speak out and be annoying and risk either arguments or moments of awkwardness. Unless and until there is a very large carbon tax, I don´t see how we can avoid catastrophic climate change without changing the social contract. This change seems to have just started but needs to happen faster.

As an aside it´s become very fashionable in environmentalist/radical/activist circles to focus only on action by governments and corporations, especially in recent years. Yes, we need to also focus on change at the level of governments. Yes, that will probably be the key part of the solution. Yes, a fairly short list of companies causes most of the emissions. Yes, the fossil fuel companies have brainwashed us and addicted us to their crack and made us fight each other rather than them. But let´s not forget about personal responsibility altogether.

Criticising people that don´t cut their carbon footprint already makes sense from a logical, rational, ethical, scientific perspective. We just need it to make sense from a social perspective.

Changing the Social Contract

2020 Climate News: A Review

Neither 2020 or climate change are topics usually associated with positivity and yet if you combine the two funnily enough you do have a good news story.

  1. Xi Jinping, the leader of China, told the UN climate assembly in September that China would peak emissions “before 2030” rather than “about 2030” and look to achieve carbon neutrality by about 2060. This is not great because we should be cutting emissions right away, but at least it´s not as bad as before. Xi is also looking to get a bigger role for China internationally, and I suspect he would go further if other countries including the US also agree to do so.
  2. In July Joe Biden announced that as President he would spend $2 trillion over four years on climate change (about $1515 per person in US per year), better than his previous policy of $1.7 trillion over ten years (about $515 per person in US per year). The plan includes green electricity by 2035 and promoting electric vehicles.
  3. Donald Trump, a climate change denier, lost the election.
  4. Boris Johnson produced a 10-point plan for climate change that has some good policies like more wind and nuclear and a 2030 ban on petrol and diesel vehicles. Not amazing, but better than expected from him and his party.
  5. The fossil fuel divestment movement made some progress and could be about to really take off in 2021.
  6. The chances of getting a carbon tax improved during the year and includes support from both sides of the political spectrum.
  7. COVID reduced the economy and therefore cut emissions, probably by about 7% in 2020 vs 2019. This will likely amount to thousands or millions of lives saved in the long run due to reduced pollution and climate change (probably not as many as those tragically killed by the pandemic itself, however).
  8. Tesla´s share price increased 7x, a sure sign that fossil fuel cars are on the way out.

Almost all of the good news related to promises made rather than actions taken, and we have gone from being in a dire state to still in a bad state, but it´s progress.

2020 Climate News: A Review