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?
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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.