Wednesday, December 23, 2009

Cap and dividend would put consumers in charge. Can we handle it?

By Dave Rochlin - originally posted on

While the climate talks in Copenhagen ended with the world wondering if the US will commit to emissions targets, I have been wondering how we will deliver on the reduction promises made in Copenhagen. Apparently Senator Maria Cantwell has been thinking about this as well.

Cap and Trade? As I wrote earlier this year, a poorly designed cap and trade scheme could lead to market manipulation and speculation in carbon credits and pollution permits that transfers much of the money to Wall Street type firms. And giving away virtually all of the the permits (as has been proposed) won't increase the cost of energy, and so won't motivate changes in underlying demand.

A carbon tax? Well it certainly factors the cost of climate change into all the stuff we consume, which will change behavior, but trusting the government to spend the money wisely on investing in new energy policies (rather than pork) and keeping the economy on track requires a large leap of faith, whether you believe in big government or not.

So I was intrigued to see that Senator Cantwell just unveiled an alternate climate bill for the US called the CLEAR (Carbon Limits and Energy for America's Renewal) act, which would create emissions caps but give the proceeds of tradeable emissions rights to consumers, in the form of a rebate. One hand taketh away, but the other hand giveth right back. Now why didn't anyone think of that sooner?

As the Wall Street journal reported:

"2,000-3,000 of the nation's largest emitters would be able to buy and sell emission credits auctioned by the government, with credit values rising as mandated greenhouse gas levels fall. Seventy-five percent of auction revenues would be recycled into monthly tax-free checks to the public to help pay for rising energy costs. (Cantwell) estimates between 2012 and 2030, for the average family, those checks could average $1,100 a year for a total of around $21,000 for the period."

The AARP said that "The CLEAR Act offers a simple, straightforward approach for reducing carbon emissions in a manner that will mitigate energy cost increases and minimize administrative costs for consumers."

Grist called it "a heartbreaking work of staggering genius" (although while they gave it an A for intention, they gave it only a C for execution.)

Without question, the current version of the proposed CLEAR act is far too brief...and of course the devil is in the details. But this direction seems to tackle the problem while overcoming concerns that trouble legislators on both sides of the aisle.

I personally love the idea that the average consumer can decide which steps to take with their rebate checks, whether it is to caulk, buy a new car, add solar panels, or support fair trade offset projects that help small farmers in Mexico or Uganda.

But I suppose one of my biggest fears is that consumers will take this check and buy more gas (or just subsidize their fuel purchases), acquire more stuff, or take trips to Disneyland....and then complain that "Everything is more expensive." Future versions of the bill may have to address this potential fatal flaw. Giving money to taxpayers has usually been characterized as a stimulus designed to get us to buy and consume more. Will this be different? "Cap and dividend" puts the people back in charge. But can they handle it? Let us now what you think in the poll question below.

In any case, I am sure we'll be hearing more about CLEAR in the upcoming weeks. You can read up on it on Senator Cantwell's website.

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