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Why Congress should take a CLEAR Approach to Climate Change

andy mannleWhat if there were a way to fight climate change and all get paid in the process?

It turns out that instead of paying the many costs of a carbon economy, we can actually get paid to avoid them. Think of CO2 emissions as an oil spill leaking into the atmosphere. Like most spills, it’s easier and cheaper to avoid making the mess in the first place, than it is to clean it up afterward. The Carbon Limits and Energy for America’s Renewal (CLEAR) Act was recently introduced with bi-partisan sponsorship in the Senate. CLEAR takes this “avoid-the-mess” approach by limiting the amount of carbon entering the economy, instead of the downstream emissions that result.

The CLEAR Act has two distinct advantages over the current Cap-and-Trade Legislation currently being considered by the Senate. Firstly, it takes a Cap-and-Dividend approach, which means paying people directly from the proceeds of carbon pricing. Secondly, it puts greater emphasis on ensuring a smooth transition to a prosperous, clean energy economy. By balancing the needs of individuals and industry, we can wean ourselves off oil in a way that is fair to everybody, economically competitive, and environmentally responsible at the same time.

According to the World Resource Institute’s analysis, here’s how the CLEAR Act would work:

Just like Cap-and-Trade, the CLEAR Act sets an annual cap on carbon consistent with our global warming reduction goals. In this case, reducing carbon from our 2005 levels roughly 20% by 2020, 40% by 2030, and 80% by 2050.

Unlike Cap-and-Trade, CLEAR establishes an auction for “carbon shares” instead of pollution credits. To sell carbon-based fuels or carbon-intensive products, importers and suppliers would need to bid for carbon shares at a government auction. Instead of giving away permits to pollute, CLEAR auctions 100% of each year’s quota of carbon shares. By putting both a pricing floor and ceiling on the market, and ramping up the price of carbon each year, CLEAR generates a substantial, and consistent revenue stream that is divided into two funds:

– 75% to the Carbon Refund Trust Fund

– 25% to the Clean Energy Reinvestment Trust Fund

The Carbon Refund Trust Fund provides an “Energy Security Dividend” tax-free to every legal resident of the United States on a monthly basis. This means that the vast majority of the money raised from a price on carbon will go directly back to individual citizens to spend however they see fit. Essentially, you’d get a check every month to help offset the cost of cleaner fuels, renewable energy, and more sustainable goods and services. Because each person would get exactly the same amount as everyone else, this is the very definition of economic democracy.

The Clean Energy Reinvestment Trust Fund (CERT) creates a pool of money that the president and Congress can use to fund programs, incentives, loans and grants that invest in a cleaner economy. The money can be used for transition assistance to workers, communities or businesses that need help in a changing economy. It can reduce the impacts to energy-intensive industries and help them remain competitive. The fund can also be used to directly support efficiency and clean energy in a variety of ways including:

–Investing directly in clean energy R&D

–Funding energy efficiency projects in low-income and public buildings

–Establish an Efficiency Consumer Loan Program so people could borrow against their dividends to invest in home efficiency or clean energy.

–Funding forestry and other land-use projects that avoid, reduce, or offset emissions, domestically or internationally.

The benefits of a Trust Fund are that unlike an open market which can be gamed in all sorts of ways, the fund is legally obligated to spend its money in clearly prescribed ways. By paying everybody an equal “Energy Security Dividend” on the one hand, and building flexibility into the programs that can be supported with the CERT funds on the other, these Trusts would wean us off carbon in a fair, transparent way while adapting to the inevitable changes in the market, climate science, or politics.

Recent analysis done by the Political Economy Research Institute (PERI) finds that the CLEAR Act delivers positive net benefits to the majority of households in every state. They calculate that in 2020, the dividend would equal $297 per person. Because the impacts of carbon pricing will not be felt equally, some states will get more benefit than others. The report calculates that even in Indiana, the most impacted state, a median household would still receive a net benefit of $10 a year. In other states, like Oregon and California, the net benefit for median income individuals could be as much as $100 per person.

Because low-income individuals spend a larger portion of their income on fuel for heating, cooling and transportation, they would receive a larger net benefit as well. The PERI analysis concludes that individuals in the bottom 10 percentile of income nationwide would receive a $186 net benefit while individuals in the top 10 percentile would take a $211 hit.

This means we could effectively tackle climate change by paying the vast majority of Americans $20 a month, while charging only the very wealthiest Americans $20 a month.

Twenty dollars a month is not a game-changer for anyone. Fighting climate change this way is not a job-killer. It provides a benefit, not a tax on working families. It is not something that we “can’t afford in a recession” as opponents of climate change legislation have been arguing recently. And by pricing carbon as it enters the economy, we avoid shifting jobs and manufacturing overseas to economies with lower carbon prices.

This simple, honest approach effectively blends the engines of the free-market with the guiding hand of government and has broad support from environmental groups, energy experts, and free-market advocates. It supports the energy and efficiency of entrepreneurs, and also helps carbon-intensive industries wean themselves off fossil fuels while remaining economically competitive.

The bottom line is that we all pay the costs of an economy based on carbon. These costs take the form of high energy prices; the destruction caused by extracting and refining fossil fuels; the cancer and asthma of burning them in our cities; and the potentially devastating impacts on global agriculture of carbon-induced climate change.

It turns out that instead of paying all those carbon costs, we can get paid by avoiding the carbon in the first place. It doesn’t get more “CLEAR” than that.

Andy Mannle is a writer and consultant dedicated to exploring sustainable policy, innovations, and solutions. His clients include New Leaf America, West Coast Green, and the ETHOS fund among others.

Andy Mannle
Andy Mannle is a writer and consultant dedicated to exploring sustainable policy, innovations, and solutions. He is the Education Director for West Coast Green, and an adviser to New Leaf America, UrbanGreen, Adam Capital and others.
 
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