Dreaming of tax and dividend

Tax and dividend is a policy approach proposed, among others, by James Hansen, climate scientist and activist.  The principle is described in his 2009 testimony to the Committee on Ways and Means of the US House of Representatives.

The principle is to levy a tax on fossil fuels (at the point of extraction or entry into the country) and immediately dividend the tax back to taxpayers on a per capita basis.  So if you have a tax of £100 per ton CO2 and raise with it, say, £50 billion, you credit back to each of the 50 million adults in the UK about £1,000 a year or £83 a month.

There is no net tax effect, because the amount levied equals the amount redistributed.  Those who use more fossil fuels than the average will suffer a net cost and those who use less fossil fuels will receive a net benefit.

The tax would need to be quite high to have an effect – Hansen suggested $100 a ton in 2009.  A criticism of tax over “cap and trade” is that a tax does not guarantee a specific quantity of reductions.  Well, anyone who knows the Bustard’s rule number one of carbon pricing would also know that a cap and trade scheme also does not guarantee a specific quantity of reductions.  In the secondary matter of a signal, a tax is much more robust than a volatile and ambiguous carbon price.

Of course, all big schemes have unexpected consequences, so surely Mr Hansen’s would, too (it would be difficult to calculated embedded carbon in imported products and it would also be vulnerable to leakage, just like the EU ETS).  But it is essential to try it out.  Cap and trade has limitations and its ability to generate deep reductions is questionable.

Yet I suspect that unless people with influence want to cut emissions seriously, all schemes will fail.  As long as people with influence are against change, they will lobby successfully against whatever scheme, however fair, wise, efficient or easy the proposed scheme is.  As strong and incorruptible leadership, immune to lobbying, is a wild dream, we’d better get dreaming really hard if we want to save our skins.

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