This post was originally published on the Breakthrough blog.
With the Lieberman Warner Climate Security Act (CSA) on the floor this week, senators from both parties are worried about how their constituents will react to higher energy prices. According to our calculations, this Kyoto-style cap and trade proposal would cost the average family of four, $2,360 a year. Some politicians are turning to “revenue recycling” as a way to offset these costs. Senator Bob Corker and Rep. Ed Markey have both introduced bills that would return half or more of the auction revenue to households to compensate for higher energy costs.
Revenue recycling is a form of cap and trade that auctions pollution permits and then returns some percentage of the revenue to consumers each year. One such proposal, Sky Trust, would return 100 percent of the revenue to consumers. The money raised from auctioning the permits would be divided up equally between Americans at the end of the year, so each individual’s dividend would be equal to the national average increase in energy prices. Under Sky Trust, if you chose to continue your normal energy use habits, you’d initially see a rise in prices, but you’d get all the money back at the end of the year. If you curtailed your energy use, you’d still get the same check as the guy who didn’t, and you would end up making money.
Peter Barnes, a Sky Trust advocate, explains it this way:
[T]he revenue doesn’t go to the government - it goes to all of us, one person, one share…
If you assume the atmosphere belongs to whichever companies grab it first, then cap-and-trade makes sense. If you assume the atmosphere belongs to government, then cap-and-auction is your choice. If you assume the atmosphere is a gift to everyone, then cap-and-recycle follows.
The way Barnes puts it, Sky Trust seems like progressive Robin Hood-ing at its best: tax the big polluters, give the money back to the people, and solve global warming in doing so. The sky belongs to all of us collectively, and it doesn’t seem fair that big business or government should reap the profits.
But if we want to protect the atmosphere for generations to come, revenue recycling is a giant step backwards, squandering funds that could be better used to drive down the price of clean energy. Programs like Sky Trust rely on market forces to invest in renewables, assuming that as the carbon cap falls, pressure to switch to clean energy will rise. But there are major obstacles to creating a clean energy economy that only government investment can overcome. Private firms can deliver groundbreaking new solar panels or wind turbines, but these are orphan technologies if we don’t have transmission lines to put them into use.
Unlike private firms, government is in a unique position to create these kinds of enabling infrastructure and technology. By removing infrastructure barriers, a major federal investment would set the stage for increased private sector investment, and drive innovation that addresses climate change on a global scale.
Revenue recycling might seem like a fair way to help American consumers, but it could never have an impact in China, where emissions surpassed our own last year. For that, we need an investment-centered approach to make solar, wind, and other renewables cheaper than the coal that developing countries rely so heavily on.
Revenue recycling isn’t just bad idea for the climate - it’s also bad politics. Voters are nervous about rising energy prices, and they’re not confident the money will be returned to them. In a recent survey [PDF] conducted by American Environics with the Nathan Cummings Foundation, barely 50 percent of respondents supported the Sky Trust proposal, and that support dropped to 31 percent after they heard arguments against it. “The key to passing substantive limits on carbon emissions is to couple those limits with specific policies to make clean energy cheaper,” noted Jeff Navin, a political analyst who worked on the survey. “Unless advocates can address the real anxiety Americans feel about the cost of energy, passing substantive limits on carbon emissions will prove extremely difficult.”
A better strategy is to use pricing mechanisms to fund investments in social goods that are directly related to the activity being priced; for climate legislation like the Climate Security Act, that would mean directing the majority of auction revenue to clean energy RDD&D. As it stands, clean energy gets just six percent, while consumer rebates, at 31 percent, are the bill’s second-largest expenditure.
Voters overwhelmingly support a strategy that invests to make clean energy cheap - Gallup found last year that 65 percent of voters support spending at least $30 billion a year to do it. And in the Nathan Cummings study mentioned above, 84 percent supported an Apollo-style investment centered approach. Even after attacks, a majority still supported Apollo. Revenue recycling doesn’t deliver a good that is particularly salient to voters, but Apollo does: it gets us off foreign oil and closer to energy independence, it creates new jobs, and invests in future clean energy industries.
The solution is sitting right in front of us. Whether it’s an auction, a carbon tax, or the various safety valve schemes proposed in most of the Congressional cap and trade legislation, there is a substantial revenue stream sitting there to be directed toward clean energy investment. The trick is to orient the proposals and messaging around delivering goods that voters actually want. It’s win-win all around for Americans, the developing world, and the climate.
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You Breakthrough guys have the political instincts of a 3 year old. A regressive tax will be politically popular!!!
No matter how loud you yell it and how many times you say it–it still has magically failed to achieve any political success. It’s not that others are too stupid to realize how smart you are… It’s that you’re just plain wrong.
If we don’t recycle revenue in a Skytrust, Cap and Dividend or tax cuts the policy just won’t stick or pass.
Think consumers are freaking out about $4/gallon gas? Just wait to see what happens after climate policy raises carbon prices….
I have to admire your persistence though.
Also, the public does not place carbon at the top of serious problems. The economy, health care, Iraq take up all the proverbial air in the room. People are willing to pay a lot if they perceive a massive problem or impending crisis. From what I read, this issue is creeping along and by the time it is manifest it may be too late…
One thing that always gets me scratching my head with the argument presented in this blog (yes, I’ve heard it from Breakthrough folks before!) is the false choice it sets up. Peter Barnes has never suggested that ALL MONEY IN GOVERNMENT go to the people, but rather that ALL MONEY FROM CARBON DUMPING PERMIT REVENUES does. The difference is paramount. There are plenty of ways to invest in an apollo project AND create a concrete understanding of the commons (learn how Sky Trust does this in my analysis here: http://www.rockridgeinstitute.org/research/rockridge/comparing-climate-proposals-a-case-study-in-cognitive-policy).
I know Peter personally and I can assure you that he is interested in clean energy investments too - just as I am. But first we need to change the paradigms shaping the climate debate. One important thing that has to happen is to get the citizens engaged directly… not much chance of that with large investments that go to big corporations and no direct way for individuals to get involved.
Also, the American Environics poll that is referenced did a horrible job presenting the Sky Trust. I should know because I was one of the people involved in getting Sky Trust mentioned in the poll in the first place. They plugged it in at the last minute, presented it in a manner that was misleading, and mentioned it near the end of the survey where it would be perceived as less important by the participant. The quality of the survey is only as good as its methodology… which doesn’t leave me with much confidence on this particular “observation.”
Isn’t it time we had an honest debate built on the recognition that there is no “single solution” and that a combination of approaches is needed. The public needs to be more engaged and called upon to participate. A positive role of government needs to be established and built upon. Strategic ideas planted by conservative think tanks need to be challenged and replaced. And investments need to be made in transforming our society for the betterment of our citizens.
- Joe Brewer, Climate Scientist and Former Fellow of the Rockridge Institute.
Joe, you write, “One important thing that has to happen is to get the citizens engaged directly… not much chance of that with large investments that go to big corporations and no direct way for individuals to get involved.”
Why do the investments have to go entirely to big corporations? We need innovation and clean energy solutions at all scales, from the individual to the institutional, and that means creating fertile ground at each of those levels. Breakthrough’s investment agenda does not call for major corporate giveaways (that’d be the Lieberman-Warner agenda!), it calls for a massive series of investments (massive in both depth AND breadth) to stimulate clean energy innovation and deployment at all scales.
I don’t doubt that Peter IS committed to clean energy investment. However, the Sky Trust plan puts literally trillions of dollars of carbon auction revenue back into consumer hands in the form of cash, relying on the carbon market price alone to spark behavioral change and clean energy solutions. That seems like an oddly neo-liberal faith in the invisible hand of the market, doesn’t it?! I’m also confused as to how handing out refund checks really gets individuals engaged in climate solutions.
The auction revenues could instead be investment in a series of programs that create fertile ground for all kinds of innovation, social entrepreneurial ventures, community-scale and locally-appropriate solutions, as well as the large-scale infrastructure and energy deployment investments we ALSO need to see.
What if, to just mention one example, we created a community energy revolving fund that was accessible to neighborhood associations, public schools and local governments to propose locally-appropriate, community-initiated clean energy/energy efficiency projects. Billions of dollars in funds would be made available to cover the capital expenses of efficiency projects, renewable district energy systems (like the one we’re working on in SE Portland) and more. The funds would be repaid over time, at zero interest, into the revolving fund so that they could be spent later on future projects and the fund replenishes itself as well as getting additional auction revenue proceeds each year, building in size every year. Wouldn’t THAT be a better way to involve individuals and communities in tangible, locally-appropriate energy solutions than simply sending them refund checks to spend on iPhones or Wal Mart goodies?
Or, to cite another great recent example, what about the Cap-and-Caulk (as in weatherize) proposal written up by Sightline folks at Worldchanging here. Isn’t it better to help weatherize the homes of low-income folks to insulate them from energy costs, rather than simply hand them checks to mail to the utilities?
It’s the hole give a man a fish, he’ll eat for a day; teach a man to fish, he’ll eat for ever, kind of thing. Why send out rebate checks to be sent to utilties to cover increased energy costs when we could instead invest in making sure people don’t have to pay those increased energy costs (ever again!) by spurring efficiency and clean energy adoption?
Then there’s the polling info cited above… It seems that refunds aren’t even as popular as you might think, and people would rather see funds re-invested in solutions. You get more bang for your buck that way too.
Now, some blend of consumer rebates to low-income folks to counteract the regressive nature of the carbon costs makes sense, especially at the beginning (weatherization programs CAN ramp up fast though, and should get rolling right off the bat). But ALL of the auction revenues as Sky Trust proposes, or even HALF of them as iCAP proposes seems WAY too much to me, and a HUGE waste of funds we should be directly investing in climate solutions.
My 2 cents (or an inflation adjusted buck twentyfive!). Cheers,
Jesse Jenkins
co-director, Breakthrough Generation
BTW, I’m in COMPLETE agreement with all of this, Joe! Well, said.
“Isn’t it time we had an honest debate built on the recognition that there is no “single solution” and that a combination of approaches is needed. The public needs to be more engaged and called upon to participate. A positive role of government needs to be established and built upon. Strategic ideas planted by conservative think tanks need to be challenged and replaced. And investments need to be made in transforming our society for the betterment of our citizens.”
Hi Jesse,
You’ve made some great points. One reaction I have is the need to transform our politics if this is going to happen. Right now there is a stranglehold on our political system by governing bodies that have no public accountability. Most of the highest ranking officials have a “revolving door” and “fox guarding the hen house” situations where the powers they represent have colluded to shift governance away from the people.
Creating a large investment fund without replacing this existing power system is nothing more than throwing more of our common wealth into private coffers.
Another comment about the poll… we explicitly stated that the term “rebate” should not be used. It evokes a very different frame than “payment” or “dividend.” I know that most economists think that $50 less paid in taxes is equivalent to $50 given as payments at $10 per month for ten months. This is NOT the same in cognitive terms, only in numerical terms. The meanings of the two situations are vastly different. So one of the ways the poll was misleading was the use of the word “rebate.”
Also, the payments in Sky Trust do not support “invisible hand” or “free market” concepts. The shift in what it means to do business is profound, as is the introduction of the concept for the commons. There is no invisible hand involved in preserving the wealth inherent in clean air.
The issue of how investments should be made (including the scale of projects and institutions involved) is critical. This is clear with the push for “biofuels” last year that was effectively a huge giveaway to petrochemical companies (for production of fertilizers and genetically modified crops), giant agribusiness corporations, and long-distance distributors. It is a great example of how we have to change our political system before any kind of Apollo project will work.
I don’t trust that large-scale investment plans that fail to take into account how people think now are going to cut it. The dominant frames in our culture are conservative. The “commonsense” understandings of markets, government, business, the environment, etc. are all stacked against us. Without changing this cultural milieu, large investments will fail.
Peter’s proposal is an attempt to change the dominant modes of thought. Critiquing it in economic terms is inappropriate. It is not an economic proposal. Instead, it is a COGNITIVE proposal. Let’s talk about alternative proposals for shifting the discourse, especially the dominant modes of thought. A list of programs (like what you wrote), though useful and good, are not about this problem. And it is the critical problem that needs to be addressed first.
The Breakthrough Institute has not responded to this. Apollo project thinking does not challenge the status quo of ideas. Something more is needed.
Best,
Joe
It really boils down to which you care more about– carbon reductions or investments?
Given the dire warnings from the IPCC, etc. I think the focus should be on reductions.
If you cap emissions (or carbon supply as Peter recommends) you’re going to increase the cost of energy/gas/and everything that uses energy & gas (at least in the short term). To make it politcally possible, you must protect people’s incomes. Otherwise political opportunists will be quite successful blocking passage & running against the incumbants that triggered those increased costs. That, as I understand it, is the essential premise of the Cap & Dividend idea.
In addition, the descending cap and carbon pricing that occurs in a Cap & Dividend system helps drive increased investment in green tech. There was already 100 billion in investment last year worldwide without any cap/pricing– that will explode with legislation.
I’m dubious on the polling done by the breakthrough crew. But one thing comes through in their polling loud & clear- people are worried about increased costs. That’s something we didn’t need any polling to understand, but it’s good to have the data.
Given that data (and the immediate need to cut emissions), shouldn’t our goals be 1) emissions reductions and 2) a mechanism to deal with the biggest politcal hurdle to those reductions?
Anyway, I think that it has more politcal legs than a massive tax increase to weatherize homes…
Thanks for the response Joe,
Again, I think we agree on your main points here. We definitely need to transform American politics and I can assure you that Breakthrough Institute is committed to that. That’s a large part (the largest really!) of what the Breakthrough Generation fellowship this summer is focusing on, and is clearly a focus of the larger youth climate movement (i.e. the Power Shift concept).
What real reality demands is clearly inconsistent with what current political realities permit. Just take a look at the woefully inadequate Lieberman-Warner bill for a start (and even that bill is going down). Let’s be very clear that Breakthrough’s work is very much a work in progress (and we welcome your advice on where we’re going from here).
I guess I’m confused how the Sky Trust model really helps shift our politics though. Can you please expand on that point.
The idea of the commons is important, but I think it’s much more powerful to inspire the concept of collectively building a new, robust energy economy that harnesses and is fueled by American ingenuity, courage and innovation, and is sustainable, both economically and ecologically. The concept of the commons can be invoked in the investment agenda Breakthrough advocates as well I imagine (i.e. Polluter Pays invokes an idea of the commons and linking it to reinvestment in public good - i.e. building a clean energy economy - seems like not too hard a connection to make).
And I think it’s important to not gloss over the economic/practical arguments about Sky Trust in that I’m afraid it just won’t work. When we’re talking about fighting off the climate crisis, we can’t really afford to ignore that, right?!
When I say Sky Trust (or cap-and-trade aka “cap-and-pray” in general) invokes a free market or invisible hand ideology, what I mean is that it relies on the pricing signals of the cap alone to drive investment and innovation. There’s no explicit focus on investing directly in solutions, and the fact that Sky Trust would spend the trillions the cap can raise entirely on dividend/rebate checks to individuals means it clearly does not prioritize investment very highly. Even the iCAP bill at least splits the two (with roughly half for investment and half for dividends). I have serious doubts that even if dividends make the high energy prices more politically palatable, that the very high carbon prices necessary to drive much more than fuel switching and low-hanging efficiency options will be politically sustainable in the long run. Relying on pricing alone means we need very high prices, and it means that we do nothing to really prime the pump for innovation, or create the fertile ground for entrepreneurial ventures across all levels, including community-scale solutions.
I agree that we need to find a way to broker these investments that avoid the pitfalls of our current political establishment. Pork-barrel, corporate-dominated congressional politics don’t lend well to smart investments for the public good! And we certainly need a shift in American politics away from conservativism to make this work. But for me, Sky Trust is not an inspiring model of how that shift will happen, nor is it an inspiring example of a workable climate policy. Cap-and-Invest seems much smarter, more progressive and more likely to work…
Cheers,
Jesse
Hi Jesse,
You said:
“I guess I’m confused how the Sky Trust model really helps shift our politics though. Can you please expand on that point.”
The shift is conceptual. The Sky Trust proposal embodies very different concepts for air, wealth, markets, government, and the role of people. Here is a (very short) comparison of old vs. new meanings for each:
Air
In Western culture, air is conceptualized as an empty void. It is a “nothing” that is invisible to us. Thus, it is no big deal if other invisible things (like CO2) are dumped into it. A nothing has no inherent value.
Sky Trust is built on the idea that air is conceptualized as a life-giving substance - a “something” that is inherently valuable because we depend upon it for our survival and flourishing. Thus, if it becomes contaminated by something that jeopardizes our well-being (like CO2) there is a problem.
Wealth
In our current opinion environment, wealth is typically thought of as money that individuals (persons or institutions) have control of. This is a narrow, or impoverished view of wealth.
Sky Trust is built on the metaphor that Wealth is Well-being, where anything that contributes to individual and collective well-being is a source of wealth. Thus, the air - by its life-giving properties - is a source of wealth.
Markets
The dominant understanding of markets in our culture is that they are (a) natural and (b) inherently good. An inference that emerges from this concept is that government is wasteful and burdensome to markets.
Sky Trust explicitly seeks to “construct a new market” which means that markets are conceptualized as a tool for society that is constructed by people to serve various purposes. By requiring companies to pay the full cost of doing business, it promotes an understanding that markets can create profits while also preserving sources of well-being (other forms of wealth - including the common wealth).
Government
As alluded to above, there is a widespread view that government is (a) external and distinct from markets and (b) inherently problematic to their functioning. With the understanding that markets are constructed, the role of government becomes more positive - to promote the development of infrastructure for public benefit (including the creation of public benefit markets).
The Role of People
The standard approaches to climate policy place people in the role of passive consumer, including for the most part the investment schemes that focus on large-scale development projects. This happens when policies focus on the role of industry - with no direct reference to the role of people.
Sky Trust explicitly places people in the role of citizen, shifting the frame to a context of civic responsibility for preserving the common wealth.
Each of these conceptual shifts is part of the political transformation that needs to happen. Not only must there be new activities for people to experience.. there must also be shifts in the conceptual structures people reason with.
This cognitive dimension of the proposal is invisible to most of the tenets from Western philosophy about the nature of the human mind. It is the vital component I am referring to.
All the best,
Joe
To dividend or to invest? My, it IS getting hot in here.
Great debate, and its happening everywhere I go.
The answer, I believe, is both.
Carbon capping with cash back allows us to set the emissions reduction trajectory we desperately need. We can drive the price of carbon permits through the roof, as you might expect the carbon markets will do when we pass a law that requires America get back to 1990 levels, and reduce emissions 20-30% below THAT by 2020.
Gulp.
Cap and Cash Back is the only program that could legally limit emissions that deeply, and not provoke a huge societal backlash–the polluter/middle class coalition, with unlimited access to polluter wealth to stoke the fire of resistance. It happened just that way in CA when proposition 87 went down, a teeny oil tax to fund green innovation. The polluters drove their advertising campaigns to African-American and Latino news and radio outlets.
Today, as regulators in St. Paul debated whether to approve a new coal plant, they tabled it due to uncertainty about the future price of carbon. (That’s good.) As the US Senate debated the oh-so-tepid Boxer-Lieberman-Warner bill, a multi-state utility Basin Electric ran ads in major papers across the region with brown faces and Indian faces saying “call Congress, there has to be a better way”. (That’s bad.)
Okay, saying that I am a cap and dividend guy, I am no market fundamentalist.
I believe that Breakthrough/Apollo/ green jobs/ energy innovation vision is very powerful, is a great message platform (Fresh Energy uses the “modern- innovative-21st-century-energy frame” constantly). Everyone would concede its not mainly driven by government spending, but lots of stuff requires public investment. $30 billion per year is a very modest sum in America. Its about a month in Iraq. Its about 1/3 of oil industry coal industry giveaways. There is plenty of money in America, without turning the carbon market debate into a public finance debate. Getting a high price on carbon soon, and getting a steep,legally-binding reduction in emissions soon are one part. Jump-starting the green economy is part two. We don’t need to finance part two with money from part one.
We don’t have to finance the investment vision that drives a public passion by taking the money from the poor and middle class. Imagine the TV ads that have “Harry and Louise” facing foreclosure, blaming the Arab Oil cartel and environmental advocates of the “cap&spend” program. “Harry, I heard that the purpose of the program is too make these crazy energy prices even HIGHER! That’s right Louise, and I heard President(fill in the blank)on the radio. He’s for it too!”
Two parts:
Cap and Cash Back. Shift oil subsidies to energy innovation and green jobs. Let’s vote.
Joe, thanks for the clarification. Those conceptual turns are all very important. I guess I’m still failing to see how the rebate/dividend part of Sky Trust is necessary for those conceptual turns, or how a Cap-and-Invest kind of program that makes explicit the concept of the commons and involves citizens in solutions at all scales wouldn’t be superior to the rebate/dividend scheme.
Let’s look at them one at a time:
Air
Making polluters pay to pollute the air is the same under a Cap-and-Invest and Cap-and-Dividend scheme, as long as allowances are auctioned. If the rationale for auction is explicitly pinned on the concept of the air as a life-sustaining Commons, I think this is the same under either.
Wealth
Same as above here, right? Cap-and-Invest and Cap-and-Dividend amount to the same re-conceptualization of wealth built on the concept of a Trust or Commons, as long as pollution permits are auctioned to pay for their violation/degradation of the Commons.
Markets
I think a cap-and-invest scheme trumps the dividend plan here, in that it not only forces companies to pay the full cost of doing business and polluting the Commons, it also helps re-invest those funds into building a truly sustainable market, both economically and ecologically, built on a new clean energy economy. Cap-and-Dividend actually leaves it up to market price signals alone to spur that new sustaining and sustainable market.
Government
Again, Cap-and-Invest trumps the Cap-and-Dividend scheme in reinventing the role of government as well. You say that Cap-and-Dividend would help foster the positive role of the Government “to promote the development of infrastructure for public benefit,” but Cap-and-Dividend limits this role to setting price signals and closing externalities (as you say, “the creation of public benefit markets”). Cap-and-Invest not only reimagines Goverment’s role in setting market conditions for the public benefit, it also reinvents (or reinstates, e.g. the New Deal), Government’s role in investing directly in the public good, via infrastructure, critical technology development, etc.
The Role of People
I still feel like the role of people under a Sky Trust type Cap-and-Dividend is mostly passive. Their role is to receive dividend checks in the mail and then what? Spend them on consumer goods? Spend them in their increased energy bills? This is the part that really confuses me.
Instead, Cap-and-Invest, and a larger investment and innovation-centered political agenda would support innovators and social entrepreneurs at all scales, and tap the spirit of ingenuity, courage and optimism that should rally and inspire Americans to rise to a grand challenge. That seems like a much more active and empowering role for individuals to play in building a better - more sustainable, just, and prosperous - future than simply receiving checks in the mail as industry polluters their Commons.
This is the central point for me, and I’d love to hear your thoughts on how Sky Trust works here. Thanks for the responses Joe,
Jesse
Jesse–
In “Cap and Invest” you’re taking hundreds of billons of dollars from consumers to give to big corporations. I think it’s just naive to think that’ll fly come election time.
(See gas prices as a political issue this summer)
I like the Sky Trust. It is a new way of thinking. Most liberals fall into a “government will solve it” mindset, and therefore want to spend the auction revenue on good things like solar and efficiency. The Sky Trust says “people own it” but NOT “the market will solve it.” This is the basic argument, and why I’ve been having a hard time convincing liberals (mostly enviros) to support the Sky Trust. Sometimes I’m confused, I’m trying to give people money, and they don’t want it? It’s because they are focused on “government will solve it” not “people own it.”
I’ve also been promoting Cap & Share (www.capandshare.org and http://www.carbonshare.org), which is even more explicit in the “people own it” frame. Carbon Share would divide the emissions under the cap by the population and mail everyone a certificate (say 16 tons CO2), which you could cash at a bank, and the bank turns around and sells it to the upstream company. It has a similar outcome to the Sky Trust, and in fact I think the two systems can co-exist through an opt-in check-box on your tax form: “How would you like your climate allocation? Check one: Dividend, Tax Rebate, or Share.”
Also, the Sky Trust does not negate all the other liberal ideas. Let’s put the whole government spending apparatus into solving climate change. But let’s also remember, “people own it.”