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Revenue-Neutral Fee and Dividend – Economic Energy for Local Solutions

I’ve spent most of my life watching the growth of fossil fuel consumption and CO2 emissions defy our every attempt to stop it: global treaties, national tax credits and efficiency standards, utility rebates, carbon trading, community choice, scientific reports, mass demonstrations, and media campaigns.

None of these very worthy efforts reaches the problem’s root: fossil energy costs are not reflected in its price. Like it or not, the market is the overwhelming power in determining how much oil, coal, and gas is burned.

There is a simple, viable solution: a revenue-neutral carbon fee and dividend (CFD), such as that proposed by Citizens’ Climate Lobby (CCL). Here’s how it works: fossil fuel companies pay a pollution fee based on the CO2 emissions capacity of the fuel they extract. The fee starts at $15/ton and increases by $10 every year until climate goals are reached. Because it’s applied “upstream” in the economy, the fee affects pricing and usage in all sectors.  

CFD will discourage nations like China from producing cut-price CO2-intensive goods at the expense of American businesses and the climate. It charges WTO-compliant import fees on products from countries without comparable carbon pricing. These border adjustments help level the global playing field, while inducing other countries to adopt their own carbon pricing, and thus reducing their emissions.

The heart of CFD is the dividend; simplicity is its key.  Every month, 100% of fee revenues are distributed to American households in equal payments based on household size. There’s no need for complex formulas to allocate dividends based on income or energy use. This maximizes transparency and minimizes administrative costs.  And it’s logical: the fossil companies pay us to use our atmosphere, in which we all have an equal share. It’s simpler, less expensive to administer, and less subject to gaming than cap and trade.

The dividend offsets the cost of living impact of rising carbon-product prices. This especially assists households with lower incomes, whose carbon footprints are generally below average. Under the CCL proposal, an estimated two-thirds of families would break even or gain financially. The dividend helps people invest in lower-emission alternatives. Everyone – Individuals, inventors and investors – has a growing financial incentive to reduce CO2 emissions. With the fee “stick” and the dividend “carrot”, CFD leverages the power of the entire marketplace, without the political volatility of regulation or subsidies.

CFD’s dividend has another important impact: it actually boosts the economy. Regional Economic Modeling, Inc. (REMI), a prestigious non-partisan economic modeling firm (whose clients range from the NFIB to the NEA) produced an in-depth study of CCL’s CFD proposal. After 10 years, CFD would yield a net 2.1 million increase in jobs while reducing CO2 emissions by 33%, compared to the baseline case.  After 20 years, that jumps to 2.5 million jobs and a 52% overall CO2 reduction.  

REMI found that after ten years of CFD, the average annual net incomes, accounting for cost of living increases, would rise by over $500 per person.  By putting more money in the pockets of people likely to spend it, CFD would stimulate job-creating investments.  The expected job losses in the fossil fuel industry are more than offset by growth in manufacturing and construction (e.g. wind, solar, efficiency in buildings and transportation) as well as retail and health services.

100% revenue recycling is also a requirement for success in Congress, making CFD the only viable near-term alternative. Conservatives who have pledged to oppose new taxes find this free-market approach preferable to EPA regulations, counter-subsidies, and Federal industrial policy. George Shultz, a CFD supporter and CCL Advisory Board member, explains: “It’s not a tax if the government doesn’t keep the money.” (Long-time climate champions James Hansen and Bill McKibben also support CFD.)

Local solutions have their place. The Climate Protection Campaign is developing great innovations, defining the path for other localities to follow. By supporting CFD and changing the market rules, we’ll give all local initiatives a huge boost of economic energy.

Want to help? Citizens’ Climate Lobby trains and energizes people to create the political will required to enact this legislation in the next Congress. Please visit our website, register your support, and learn what you can do.

Bruce Hagen

Citizens’ Climate Lobby


Bruce Hagen’s energy and environment activism roots go back to Earth Day 1. He now works for Enphase Energy, a high-tech solar energy firm in Petaluma, California.