Policy Design for a National Carbon “Cap-and-Divide” Program To Boost Net Incomes While Reducing Global Warming Pollution

By Jeremiah Lowery and Mike Tidwell, Chesapeake Climate Action Network

Photo by Benzinga

The idea of a national “cap-and-dividend” policy on carbon pollution is an approach that would reduce greenhouse emissions nationwide while progressively boosting the net incomes of most Americans. The concept, first popularized by California entrepreneur Peter Barnes, is elegant in its simplicity. A version of this policy is now gaining popularity in the District of Columbia and could see legislative adoption as early as late 2017.

How would it work on a national scale? A scientifically calibrated cap — lowered year by year — would be placed on greenhouse gases pollution triggered by “upstream” companies who first introduce oil, coal and natural gas into the economy. These companies would be required to obtain auctioned permits to cover each ton of their greenhouse gas emissions. Dividends from the sale of the permits would then be returned directly to all American citizens through equal-size monthly rebates. This would compensate citizens for their increased energy costs while simultaneously creating a net income gain for lower- and middle-income Americans.

The carbon revenue would be collected by the US Treasury Department which would issue monthly electronic transfers — or checks where needed — in equal shares to every American with a social security number. The economy-wide nature of the cap combined with a universal dividend would make the policy economically progressive. Higher income Americans who use more energy than average would not be fully compensated by the same-share dividend. This would provide incentives to conserve energy. Lower- and middle-income Americans — covering 70–80% of the population — would see their net monthly incomes rise. This would provide a dependable multi-decade source of new non-labor income that would eventually reach thousands of dollars per year per average family. This in turn could serve as an anchor of cash support when combined with other UBI sources that are built into our future economy. The carbon income would not be permanent, of course. As carbon fuel use falls nationally as an intended consequence of the cap-and-dividend policy, so will the income. But for several decades, this will be a significant and politically durable source of money. Like Social Security, the universal benefits component of the policy means that any future politician would find it very, very difficult to end the policy.

A trial run of this policy is currently gathering support in the city of Washington, DC. As a “city state” (versus a self-contained nation), DC cannot impose a cap on emissions. It can, however, create a “FEE-and-dividend” approach where fossil fuels are effectively taxed upon arrival in the city and the revenue rebated in equal shares to all residents of the city. The “Put A Price On It DC!” campaign, led by the Chesapeake Climate Action Network, now has the support of a wide array of leaders in the health, environmental, economic justice, civil rights, faith, and business communities. Legislation will likely be introduced this spring or summer of this year with a target vote by the end of the year.


This is the third piece in a series of pitches written for the Economic Security Project’s first design workshop on basic income held last spring. We are sharing these pieces in the lead up to the Economic Security Project’s first ever Cash Conference on Thursday October 19th in San Francisco. RSVP to attend here.

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The Economic Security Project challenges the status quo by catalyzing ideas that build economic power for all Americans.

Economic Security Project

The Economic Security Project challenges the status quo by catalyzing ideas that build economic power for all Americans.

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