A Convenient Windfall: Global Warming’s Big Cash Dividend

For years we’ve heard the bad news about global warming: ice caps are melting, hurricanes are intensifying, polar bears are dying all because we humans can’t stop burning fossil fuels. What we haven’t heard is the good news: we’ll earn an enormous cash windfall if we fight global warming the right way. That windfall will flow from the sale of carbon emission permits, and it could amount to trillions of dollars over time.

Here’s how America can reap this climate dividend. First, we need to cap carbon dioxide emissions economy-wide, and crank the cap down 2 or 3 percent each year until mid-century.

Then, we need to make polluters pay for fouling the atmosphere. The way to do that is to make them buy carbon emission permits up to the annual cap. Emitters will then see a market price for burning fossil fuels that’s closer to the real costs such burning imposes. And we, the people, will get to use that money for the common good.

This green dividend ‘from heaven’ represents the atmosphere’s value as a waste sink, a value that turns into cash when tradable emission permits are sold. Because the supply of these permits will decline for several decades, while demand for them continues to rise, the proceeds from such sales will be sizeable. What’s more, they’ll increase as years go by.

There are lots of good things we could do with this climate windfall. We could, for example, pay individual dividends, as Alaska has done with its oil windfall and presidential hopefuls Hillary Clinton and Tommy Thompson propose doing in Iraq. What Alaska does with its oil revenue would work as well, or better, with the whole country’s air revenue. Or we could invest the windfall in low-carbon technologies, energy conservation, better public transit and the like. Such investments would accelerate the transition to a low-carbon economy and ease the upward pressure on fuel prices.

But don’t call the Brinks trucks just yet.

The question we as a society haven’t yet answered is, To whom does the climate windfall rightfully belong? Does it belong to all of us as a community, to citizens individually, or to businesses that emit carbon?

The latter possibility is no joke. Companies in energy-intensive industries say that they should receive future carbon emission permits free of charge. Their argument is that they’ll be hurt by higher fossil fuel prices, and therefore need to be ‘whole.’

There are two big problems with this claim. One is that it would hijack a windfall that belongs to everyone. The other is that it would put government in the business of assessing companies’ prospective losses, and if it finds them burdensome, offsetting them.

That is a slippery business to get into. There’s no solid methodology for assessing future losses in fast-changing markets. Even if there were, it isn’t government’s job to make private businesses whole when market conditions shift. That wouldn’t be capitalism; it would be corporate welfare. It would create a system in which lobbying and campaign contributions pay off far more than risk-taking and innovation.

Moreover, the reality is that most businesses will pass higher fuel prices on to consumers. If anyone needs to be compensated, it is thus households rather than companies. An Alaska-style plan would do that nicely and without favoritism. And individual ‘green dividends’ would not only maintain consumer buying power in the face of rising fuel prices; they’d also build lasting political support for emission reductions.

As it turns out, there’s real-world evidence that privatizing the climate windfall would be a serious mistake. The European Union gave free emission permits to coal-burning utilities, and the undisputed results were windfall profits for the utilities, higher prices for everyone else, and zero public benefit. Everyone from Deutsche Bank to the British Conservative Party now says that emission permits should be auctioned.

The climate debate is no longer about science. Increasingly, it’s about what to do with the climate windfall. Stripped of verbal niceties, the choice is between the common good and private gain. New York and Massachusetts among the first U.S. states to cap carbon emissions have chosen the common good. It’s too soon to know what Congress will do, but a breeze is blowing in the right direction.

Peter Barnes is the author of “Capitalism 3.0: A Guide to Reclaiming the Commons.” A pioneering socially responsible entrepreneur, he founded Working Assets Long Distance as well as an early solar power company.

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9 Comments so far

glad March 23rd, 2007 5:43 pm

Mr. Barnes has written an excellent article. It is, however, my opinion that he has not covered a basic point, which I will attempt to make with a few short statements.

Ultimately, corporations (oil, electric utilities, petrochemical and cement manufacturing) don’t pay taxes, income or carbon taxes.

Citizens/consumers do pay taxes and rightly so, because we are the polluters. Oil corporations use/combust very little oil/gasoline, and therefore cause very little relative atmospheric pollution. Electric utilities, that use coal-fired generators, primarily produce only the electricity that the consumers/citizens require/demand, and therefore cause very little additional pollution beyond consumer demand.

We as citizens of the world are the consumers of energy and therefore the polluters of the world’s atmosphere. This, of course, includes all of the energy used to produce all of the products we demand.

One of the answers, to the Global Warming problem, of course is CONSERVATION. If we reduce our consumption, we reduce the CO2 released into the atmosphere, both in the producing of the energy resources, and then the combustion of the resulting fuels.

What consumers should and must do is demand cleaner fuels, especially when we are other ones that ultimately pay the tax/carbon tax.

Robert Settgast March 23rd, 2007 9:14 pm

It is remarkable that it took the Al Gore’s documentary “Inconvenient Truth”, and now the polar bear demise and the recent conclusions from the international scientific community, to alert many to the impending dangers from global warming–which has been obvious to anyone who had made even minor efforts to be informed. The evidence linking carbon pollution to warming is as close to certain as science can be. Its causes, consequences, and mitigation requirements have been documented by the scientific community, many dedicated environmental organizations including The Union of Concerned Scientists, and chronicled in the press for years.

The dangerous manipulation of essential scientific data used by this administration to conceal and derail corrective measures for this threat and other vital environmental reforms has also been apparent. Th gullibility of so many who are influanced by them is more alarming than the scientific manipulation itself.

Contrary to their assertions, measures to reduce greenhouse gases could only improve our economy by lessening our trade deficits, and improving our security by reducing our dependance on foreign oil. We could also regain some of our lost world respect that has resulted from our opposition Kyoto while arrogantly contributing disproportionally to carbon pollution. With our involvement, China & India could then be compelled to join the rest of the developed world.

Often overlooked is the fact that the same measures needed to mitigate global warming would be necessary even if it were not an issue. Conservation, alternative energy development, anti- pollution refinements, etc are essential for other vital environmental reforms such as air and water quality, reductions in toxic waste generation, land preservation, etc.

The environmental and social damage from our indifference to (and even denial of) carbon pollution and its effects can only worsen if we allow these destructive policies of this reckless and unlearned president and his financial supporters to continue.
rhsettgast@hotmail.com

WmC March 24th, 2007 7:51 am

Have to confess that I don’t have an intuitive grasp of how trading carbon credits would work. I do know the idea leaves me cold–so to speak.

Since carbon pollution affects everyone in the world, regardless of nationality and regardless of how much each individual generates, there can be no logical justification for allowing nations, states or corporations to trade carbon credits.

Either each person in the world should be given a carbon ratio which he/she would be allowed to trade. Or there should be a uniform worldwide tax on carbon emissions administered by an international agency. Anything in between makes no sense, and would be doomed to be captured by corporate interests.

genaman March 24th, 2007 8:08 am

In short people the pollution corporation will just pass the expense of the carbon tax back to the consumers, Another corporate bonus will be most of that tax will probably come back to them supposily to modernize.

Solution ! close down the polluters period.
We citizens will sure find out fast how to conserve.
We are still alloud to dream RIGHT?

Gail March 24th, 2007 10:08 am

glad March 23rd, 2007 5:43 pm

“What consumers should and must do is demand cleaner fuels, especially when we are other ones that ultimately pay the tax/carbon tax.”

Congress recently had a hearing about this issue with CEOs from private and municipal utility companies. There is no question that the taxpayers will cover the bulk costs for these companies to deliver cleaner energy. Very little, if any money, from private utilities will go toward research and development.

Gail March 24th, 2007 10:42 am

“The question we as a society haven’t yet answered is, To whom does the climate windfall rightfully belong? Does it belong to all of us as a community, to citizens individually, or to businesses that emit carbon?”

The wind may be blowing in the right direction at the moment on this issue, but when the campaign contribution promisses from the energy lobbyists start blowing toward the politicians, they will probably screw us again like they did when they gave away the public’s “bandwith” to the telecom companies who are charging us outrageous fees, not to mention all the added-on taxes we’re paying to be wiretapped by our government.

I can’t wait to see what the corporate hacks in congress come up with as an excuse to dish out more corprorate welfare in the form of “carbon” windfalls.

drosenblum March 24th, 2007 10:52 am

Peter Barnes is absolutely correct that “we need to make polluters pay for fouling the atmosphere and that “we’ll earn an enormous cash windfall if we fight global warming the right way.” Unfortunately his “right way” is a cap-and-trade program.

As Barnes acknowledges, polluters are arguing that they should receive future carbon emission permits free of charge to avoid being hurt by a cap and trade program. In fact, they have received free allowances under existing cap-and-trade programs for NOx and SO2 and they have good reason to expect that they will receive free allowances if there is a carbon cap-and-trade program. Barnes is correct that “there’s real-world evidence that privatizing the climate windfall would be a serious mistake” and that when the European Union gave out free carbon emissions permits to coal-burning utilities, “the undisputed results were windfall profits for the utilities, higher prices for everyone else, and zero public benefit.”

Barnes concludes that the permits should be auctioned rather than given away. The danger is obvious. Gail’s comment is right on target about what will happen when the campaign contribution promises from the energy lobbyists start flowing. When it comes to making deals in Congress, the coal-mining companies and the companies burning coal have tremendous clout and the inevitable result will be a cap-and-trade program with the allowances given to the polluters along with the cash windfall.

The good news is that we really can earn an enormous cash windfall by fighting global warming the right way. That right way is by implementing a carbon tax, which is superior to cap-and-trade programs for six fundamental reasons:

1. Carbon taxes will lend predictability to energy prices, whereas cap-and-trade systems will aggravate the price volatility that historically has discouraged investments in less carbon-intensive electricity generation, carbon-reducing energy efficiency and carbon-replacing renewable energy.
2. Carbon taxes can be implemented much sooner than complex cap-and-trade systems. Because of the urgency of the climate crisis, we do not have the luxury of waiting while the myriad details of a cap-and-trade system are resolved through lengthy negotiations.
3. Carbon taxes are transparent and easily understandable, making them more likely to elicit the necessary public support than an opaque and difficult to understand cap-and-trade system.
4. Carbon taxes can be implemented with far less opportunity for manipulation by special interests, while a cap-and-trade system’s complexity opens it to exploitation by special interests and perverse incentives that can undermine public confidence and undercut its effectiveness.
5. Carbon taxes address emissions of carbon from every sector, whereas cap-and-trade systems discussed to date have only targeted the electricity industry, which accounts for less than 40% of emissions.
6. Carbon tax revenues can be returned to the public through progressive tax-shifting, while the costs of cap-and-trade systems are likely to become a hidden tax as dollars flow to market participants, lawyers and consultants.

For details, take a look at our Carbon Tax Center web site at www.carbontax.org.

PJD March 24th, 2007 11:48 am

Sorry, I don’t buy the “consumers are the polluters argument”.

Is is a great misconception, a deliberate one foisted on us by “free-market fundamentalists”, that out current state of affairs arose from a system of consumers rationally voting with their feet. But, it is axiomatic that consumers can only choose what is offered on the market. Also, the goods are offered to the consumer are carefully chosen to maximize profit, by individual corporations particularly those that have a symbiotic relationship, like coal and electricity, or oil and autos.

It is then left to the multi-hundred billion dollar advertizing, PR and mass media industry to manufacture that consumer consent.

Evidence of this is everywhere. Look at all the large SUV’s owned by singles or very small households living in cities - their size and poor maneuverability make them an absolutely irrational choice - but they buy them in huge numbers anyway! Don’t you thing that endless images of SUV’s on TV (not just advertising) and the near unavailability of small cars in dealer’s lots has something to do with it?

The biggest deliberate dis-utility for which consumers have no choice is suburban development. Sorry, but it is simply not rational consumer choice to live where one must get in a car and drive 10 miles down a a car and traffic light clogged suburban strip just to get a loaf of bread, when their parents or grandparents lived where they could walk to the corner grocery. Either the consumer has been trained to believe there is no choice, or really has no choice due to job location or affordability of housing.

As one who doesn’t watch much TV, the profound limits to consumer choice - while cleverly maintaining an image of abundance of choice - is obvious by simply turning on the TV. 90 percent of all the prime-time TV advertising is for literally about four different goods - SUV’s or pickup trucks, cell phones, cheap watery beer from Colorado, and financial services. Period. I guess this is why supposedly individualistic Americans have such incredibly stereotyped and conformist styles and tastes.

So, thousands of emminetly practical, products are simply not made avaliable, or the consumer is deliberately left unaware of them. I had to go through great efforts to find, buy (sight unseen) and have shipped a battery-electric Vespa-style motor scooter. With top speed of 35-40 mph and a range of about 25 miles, it is the perfect product for fair-weather errands and commuting in cities - the zero emissions being just a extra feature. But riding it (particularly in suburbia where they don’t watch old Italian movies), elicits open mocking, derision, (often by grown adults) and in one case, eggs thrown at it while parked - because it isn’t a big bad motorcycle like they see on TV. Now, imagine how fast that would change if they started appearing on on prime-time TV.

The modern advertising industry was originated by Edward Bernays in the 1920’s and Walter Lippman in the 1950s- these two individuals had contempt for democracy, and openly promoted means to control information and “manufacture consent” of dumb people like you or me by the “elites” - and they literally used these words - later to become the title of Herman and Chomsky’s book.

WmC March 25th, 2007 4:29 pm

Excellent points from drosenblum March 24th, 2007 10:52 am.

One question that I have yet to hear answered: Where would US global emissions be today if Congress had passed Bill Clinton’s carbon tax proposal of 1993? Anyone know of research done on this topic?

http://en.wikipedia.org/wiki/Carbon_tax

glad March 23rd, 2007 5:43 pm

Mr. Barnes has written an excellent article. It is, however, my opinion that he has not covered a basic point, which I will attempt to make with a few short statements.

Ultimately, corporations (oil, electric utilities, petrochemical and cement manufacturing) don’t pay taxes, income or carbon taxes.

Citizens/consumers do pay taxes and rightly so, because we are the polluters. Oil corporations use/combust very little oil/gasoline, and therefore cause very little relative atmospheric pollution. Electric utilities, that use coal-fired generators, primarily produce only the electricity that the consumers/citizens require/demand, and therefore cause very little additional pollution beyond consumer demand.

We as citizens of the world are the consumers of energy and therefore the polluters of the world’s atmosphere. This, of course, includes all of the energy used to produce all of the products we demand.

One of the answers, to the Global Warming problem, of course is CONSERVATION. If we reduce our consumption, we reduce the CO2 released into the atmosphere, both in the producing of the energy resources, and then the combustion of the resulting fuels.

What consumers should and must do is demand cleaner fuels, especially when we are other ones that ultimately pay the tax/carbon tax.
Robert Settgast March 23rd, 2007 9:14 pm

It is remarkable that it took the Al Gore’s documentary “Inconvenient Truth”, and now the polar bear demise and the recent conclusions from the international scientific community, to alert many to the impending dangers from global warming–which has been obvious to anyone who had made even minor efforts to be informed. The evidence linking carbon pollution to warming is as close to certain as science can be. Its causes, consequences, and mitigation requirements have been documented by the scientific community, many dedicated environmental organizations including The Union of Concerned Scientists, and chronicled in the press for years.

The dangerous manipulation of essential scientific data used by this administration to conceal and derail corrective measures for this threat and other vital environmental reforms has also been apparent. Th gullibility of so many who are influanced by them is more alarming than the scientific manipulation itself.

Contrary to their assertions, measures to reduce greenhouse gases could only improve our economy by lessening our trade deficits, and improving our security by reducing our dependance on foreign oil. We could also regain some of our lost world respect that has resulted from our opposition Kyoto while arrogantly contributing disproportionally to carbon pollution. With our involvement, China & India could then be compelled to join the rest of the developed world.

Often overlooked is the fact that the same measures needed to mitigate global warming would be necessary even if it were not an issue. Conservation, alternative energy development, anti- pollution refinements, etc are essential for other vital environmental reforms such as air and water quality, reductions in toxic waste generation, land preservation, etc.

The environmental and social damage from our indifference to (and even denial of) carbon pollution and its effects can only worsen if we allow these destructive policies of this reckless and unlearned president and his financial supporters to continue.
rhsettgast@hotmail.com
WmC March 24th, 2007 7:51 am

Have to confess that I don’t have an intuitive grasp of how trading carbon credits would work. I do know the idea leaves me cold–so to speak.

Since carbon pollution affects everyone in the world, regardless of nationality and regardless of how much each individual generates, there can be no logical justification for allowing nations, states or corporations to trade carbon credits.

Either each person in the world should be given a carbon ratio which he/she would be allowed to trade. Or there should be a uniform worldwide tax on carbon emissions administered by an international agency. Anything in between makes no sense, and would be doomed to be captured by corporate interests.
genaman March 24th, 2007 8:08 am

In short people the pollution corporation will just pass the expense of the carbon tax back to the consumers, Another corporate bonus will be most of that tax will probably come back to them supposily to modernize.

Solution ! close down the polluters period.
We citizens will sure find out fast how to conserve.
We are still alloud to dream RIGHT?
Gail March 24th, 2007 10:08 am

glad March 23rd, 2007 5:43 pm

“What consumers should and must do is demand cleaner fuels, especially when we are other ones that ultimately pay the tax/carbon tax.”

Congress recently had a hearing about this issue with CEOs from private and municipal utility companies. There is no question that the taxpayers will cover the bulk costs for these companies to deliver cleaner energy. Very little, if any money, from private utilities will go toward research and development.
Gail March 24th, 2007 10:42 am

“The question we as a society haven’t yet answered is, To whom does the climate windfall rightfully belong? Does it belong to all of us as a community, to citizens individually, or to businesses that emit carbon?”

The wind may be blowing in the right direction at the moment on this issue, but when the campaign contribution promisses from the energy lobbyists start blowing toward the politicians, they will probably screw us again like they did when they gave away the public’s “bandwith” to the telecom companies who are charging us outrageous fees, not to mention all the added-on taxes we’re paying to be wiretapped by our government.

I can’t wait to see what the corporate hacks in congress come up with as an excuse to dish out more corprorate welfare in the form of “carbon” windfalls.
drosenblum March 24th, 2007 10:52 am

Peter Barnes is absolutely correct that “we need to make polluters pay for fouling the atmosphere and that “we’ll earn an enormous cash windfall if we fight global warming the right way.” Unfortunately his “right way” is a cap-and-trade program.

As Barnes acknowledges, polluters are arguing that they should receive future carbon emission permits free of charge to avoid being hurt by a cap and trade program. In fact, they have received free allowances under existing cap-and-trade programs for NOx and SO2 and they have good reason to expect that they will receive free allowances if there is a carbon cap-and-trade program. Barnes is correct that “there’s real-world evidence that privatizing the climate windfall would be a serious mistake” and that when the European Union gave out free carbon emissions permits to coal-burning utilities, “the undisputed results were windfall profits for the utilities, higher prices for everyone else, and zero public benefit.”

Barnes concludes that the permits should be auctioned rather than given away. The danger is obvious. Gail’s comment is right on target about what will happen when the campaign contribution promises from the energy lobbyists start flowing. When it comes to making deals in Congress, the coal-mining companies and the companies burning coal have tremendous clout and the inevitable result will be a cap-and-trade program with the allowances given to the polluters along with the cash windfall.

The good news is that we really can earn an enormous cash windfall by fighting global warming the right way. That right way is by implementing a carbon tax, which is superior to cap-and-trade programs for six fundamental reasons:

1. Carbon taxes will lend predictability to energy prices, whereas cap-and-trade systems will aggravate the price volatility that historically has discouraged investments in less carbon-intensive electricity generation, carbon-reducing energy efficiency and carbon-replacing renewable energy.
2. Carbon taxes can be implemented much sooner than complex cap-and-trade systems. Because of the urgency of the climate crisis, we do not have the luxury of waiting while the myriad details of a cap-and-trade system are resolved through lengthy negotiations.
3. Carbon taxes are transparent and easily understandable, making them more likely to elicit the necessary public support than an opaque and difficult to understand cap-and-trade system.
4. Carbon taxes can be implemented with far less opportunity for manipulation by special interests, while a cap-and-trade system’s complexity opens it to exploitation by special interests and perverse incentives that can undermine public confidence and undercut its effectiveness.
5. Carbon taxes address emissions of carbon from every sector, whereas cap-and-trade systems discussed to date have only targeted the electricity industry, which accounts for less than 40% of emissions.
6. Carbon tax revenues can be returned to the public through progressive tax-shifting, while the costs of cap-and-trade systems are likely to become a hidden tax as dollars flow to market participants, lawyers and consultants.

For details, take a look at our Carbon Tax Center web site at www.carbontax.org.
PJD March 24th, 2007 11:48 am

Sorry, I don’t buy the “consumers are the polluters argument”.

Is is a great misconception, a deliberate one foisted on us by “free-market fundamentalists”, that out current state of affairs arose from a system of consumers rationally voting with their feet. But, it is axiomatic that consumers can only choose what is offered on the market. Also, the goods are offered to the consumer are carefully chosen to maximize profit, by individual corporations particularly those that have a symbiotic relationship, like coal and electricity, or oil and autos.

It is then left to the multi-hundred billion dollar advertizing, PR and mass media industry to manufacture that consumer consent.

Evidence of this is everywhere. Look at all the large SUV’s owned by singles or very small households living in cities - their size and poor maneuverability make them an absolutely irrational choice - but they buy them in huge numbers anyway! Don’t you thing that endless images of SUV’s on TV (not just advertising) and the near unavailability of small cars in dealer’s lots has something to do with it?

The biggest deliberate dis-utility for which consumers have no choice is suburban development. Sorry, but it is simply not rational consumer choice to live where one must get in a car and drive 10 miles down a a car and traffic light clogged suburban strip just to get a loaf of bread, when their parents or grandparents lived where they could walk to the corner grocery. Either the consumer has been trained to believe there is no choice, or really has no choice due to job location or affordability of housing.

As one who doesn’t watch much TV, the profound limits to consumer choice - while cleverly maintaining an image of abundance of choice - is obvious by simply turning on the TV. 90 percent of all the prime-time TV advertising is for literally about four different goods - SUV’s or pickup trucks, cell phones, cheap watery beer from Colorado, and financial services. Period. I guess this is why supposedly individualistic Americans have such incredibly stereotyped and conformist styles and tastes.

So, thousands of emminetly practical, products are simply not made avaliable, or the consumer is deliberately left unaware of them. I had to go through great efforts to find, buy (sight unseen) and have shipped a battery-electric Vespa-style motor scooter. With top speed of 35-40 mph and a range of about 25 miles, it is the perfect product for fair-weather errands and commuting in cities - the zero emissions being just a extra feature. But riding it (particularly in suburbia where they don’t watch old Italian movies), elicits open mocking, derision, (often by grown adults) and in one case, eggs thrown at it while parked - because it isn’t a big bad motorcycle like they see on TV. Now, imagine how fast that would change if they started appearing on on prime-time TV.

The modern advertising industry was originated by Edward Bernays in the 1920’s and Walter Lippman in the 1950s- these two individuals had contempt for democracy, and openly promoted means to control information and “manufacture consent” of dumb people like you or me by the “elites” - and they literally used these words - later to become the title of Herman and Chomsky’s book.
WmC March 25th, 2007 4:29 pm

Excellent points from drosenblum March 24th, 2007 10:52 am.

One question that I have yet to hear answered: Where would US global emissions be today if Congress had passed Bill Clinton’s carbon tax proposal of 1993? Anyone know of research done on this topic?

http://en.wikipedia.org/wiki/Carbon_tax

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