Biden’s COVID Relief Plan Hints at a Way to Tackle Climate Change
Carbon dividends are the right medicine
Few policies are more popular than the $1,400 in stimulus checks that President Joe Biden and Congress are moving to approve in the next round of COVID-19 relief. According to a recent Quinnipiac poll, an overwhelming 90 percent of Democrats and 64 percent of Republicans support these checks. The president and congressional leaders should draw inspiration from this policy to tackle the next crisis: climate change.
You might wonder: Sending money to families sounds good — but what does it have to do with combating climate change?
To understand, let’s look to our neighbor to the north…
How Canada makes climate policy work for families
In several Canadian provinces — Ontario, Manitoba, Saskatchewan, and Alberta — residents receive regular “Climate Action Incentive Payments” (aka, carbon dividends). In 2021, a family of four will receive carbon dividends in the range of $600-$1,000 CAD, depending on the province — money that comes from fighting climate change.
It’s a simple but powerful concept: Polluters pay a fee on carbon pollution, which gets paid back to families as a carbon dividend.
This is a key part of Canada’s strategy to meet its goals under the Paris agreement. In December 2016, Prime Minister Justin Trudeau established a federal policy for each province to put a price on CO2 emissions, starting at $10 CAD (per metric ton) in 2018 and rising to $50 CAD in 2022. And in December 2020, the prime minister announced the price will continue rising to $170 CAD by 2030.
As the carbon price increases, it becomes more expensive to pollute, and Canadians have a stronger incentive to switch to clean energy and more sustainable practices.
In provinces that use the federal backstop policy (Ontario, Manitoba, Saskatchewan, and Alberta), 90 percent of the proceeds from the carbon tax get paid directly back to families once per year. Starting as early as 2022, families will start receiving these payments quarterly.
Let’s consider how this policy could fit within President Biden’s agenda.
It’s a simple but powerful concept: Polluters pay a fee on carbon pollution, which gets paid back to families as a carbon dividend.
Carbon dividends can harmonize the president’s economic and climate strategies
In response to the pandemic, President Biden has promised to build America’s economy back better — while continuing to cut greenhouse gas emissions that have declined over the past year.
This is a challenge. In 2020, the total number of miles driven in the United States fell by 13.2 percent as a result of measures to prevent the spread of COVID-19 — saving nearly 170 million metric tons of CO2 emissions. As more Americans get vaccinated and move about more freely, those emissions could easily return.
So how could carbon dividends provide economic relief while also cutting emissions?
One option: President Biden and Congress could enact legislation that begins providing carbon dividends to families now, which would basically function as stimulus checks. And the legislation could schedule a carbon tax to begin later this year or next year when the economy is expected to be in better shape. This is sometimes called a “prebate” (as opposed to a “rebate”) since families would receive money before the carbon tax is levied.
Senator Dick Durbin (D-IL) incorporated this idea into a 2020 bill called America’s Clean Future Fund Act, which proposed to immediately send checks to low- and middle-income households and subsequently levy a carbon tax once the economy is no longer suffering from the pandemic.
Even with this delayed implementation, families and businesses would still have an incentive to begin cutting their carbon footprints now, in anticipation of the carbon tax being levied in the future.
Once the carbon tax is steadily phased in, it could work quickly to bring down emissions. For instance, economists at Columbia University analyzed the Energy Innovation and Carbon Dividend Act and found that this legislation could cut economywide US emissions by 32–33 percent below 2005 levels in just 5 years. And in 10 years, the policy could completely transform the power sector, reducing those emissions by 82–84 percent below 2005 levels. Just to put this in context, President Obama’s Clean Power Plan, which the Trump administration repealed before it was ever implemented, aimed to reduce power sector emissions by just 32 percent below 2005 levels by 2030.
President Biden and Congress could enact legislation that begins providing carbon dividends to families now, which would basically function as stimulus checks.
How do carbon dividends stack up against a Clean Electricity Standard?
Carbon dividends aren’t the only climate policy on the table. Some climate activists are asking President Biden to implement a Clean Electricity Standard (CES) that requires all electricity in the United States to be carbon-free by 2035. So how do carbon dividends compare with a CES?
- A carbon dividend could cover three times more emissions than a CES. If designed well, a carbon dividend policy could cover over 80 percent of U.S. greenhouse gas emissions, whereas a CES only covers the power sector (27 percent of emissions). Also, a CES is only as strong as its penalty for non-compliance. If utilities can simply pay a cheap fine for failing to comply, then a CES will not actually achieve 100 percent carbon-free electricity as advertised. And as discussed above, a carbon dividend policy could work quickly to decarbonize the power sector.
- Carbon dividends pay money directly to families, whereas a CES does not. To understand why this matters, let’s look at Virginia’s CES that requires the state’s electric utility to achieve 100 percent carbon-free power by 2045. State regulators have estimated that the CES will increase the electric bill of a typical household in Virginia by about $67 per month by 2030. Compare this to a carbon tax and dividend policy. Similar to a CES, a carbon tax involves costs — but unlike a CES, a carbon tax generates revenue that can be rebated back to families as a carbon dividend. These dividend payments could make all the difference for low- and middle-income families who struggle to make ends meet.
- The cost of a carbon dividend policy is transparent and predictable, whereas no one seems to agree on how much a CES would cost. For example, cost estimates for Virginia’s CES are all over the map. In early 2020, state regulators estimated that the CES would raise the electric bill of a typical Virginia household by about $334 per year by 2030. Just a few months later, state regulators more than doubled this estimate to $808. Clean energy advocates dispute these estimates. A carbon tax and dividend policy would avoid this uncertainty because it’s easy to calculate how much a carbon tax would impact the price of different types of energy. So there’s less risk that regulators would vastly overestimate costs and approve exorbitant rate increases. This certainty makes it easier for families and businesses to plan their budgets and do cost-benefit analyses.
Who supports carbon dividends? The answer may surprise you
As you might imagine, the basic concept of carbon dividends is supported by climate activist groups like Citizens’ Climate Lobby, as well as climate scientists like Dr. James Hansen and Dr. Katharine Hayhoe.
The concept also has significant backing among Democrats in Congress and in the Biden administration. The Energy Innovation and Carbon Dividend Act of 2019 was sponsored by 86 House Democrats (and one House Republican). And prior to joining President Biden’s Cabinet, Treasury Secretary Janet Yellen and Transportation Secretary Pete Buttigieg both endorsed carbon dividend policies.
But it’s also supported by people who are not typically associated with environmental activism. Conservative icons James Baker and the late George Shultz co-authored a carbon dividend plan and founded an organization called the Climate Leadership Council (CLC) to advocate for this policy. The CLC plan is supported by 26 major companies that collectively earn $2.8 trillion in revenue per year.
American automakers General Motors and Ford have endorsed the CLC’s carbon dividend plan — perhaps because it would strengthen consumer demand for EVs and zero-emission vehicles. GM’s statement in support of carbon dividends alludes to this: “General Motors believes in an all-electric, zero-emissions future. We believe that climate change is real and that lowering emissions is both a social imperative and an economic opportunity.”
Perhaps most notably, Senator Mitt Romney (R-UT) recently signaled that he is open to the idea: “I’m very open to a carbon tax, carbon dividend, where there’s a tax on oil companies and coal companies and so forth. The funds that are raised then go to individual taxpayers so they could meet the costs of the higher price of energy.”
Though not a panacea, carbon dividends could be life-saving medicine for our climate
During her confirmation process in January, Treasury Secretary Janet Yellen made a clear prescription for healing our climate and economy: “We cannot solve the climate crisis without effective carbon pricing.”
Carbon dividends are a form of carbon pricing that is politically popular and beneficial to families.
And just like doctors prescribe both diet and exercise to improve health, carbon dividends work best when combined with complementary policies — such as vehicle fuel economy standards, R&D spending, investments in infrastructure, transition assistance for workers in carbon-intensive industries, and policies to promote environmental justice for vulnerable communities.
President Biden has an opportunity to use carbon dividends to support COVID-19 relief efforts and put America on track to meet its goals under the Paris agreement. And if desired, Congress has the option to include this legislation in a budget reconciliation bill.
If anyone can get it done, President Biden can.
