Most households in every state can come out ahead if 85% of revenue is returned as per capita dividends; targeted green-energy investments in coal-dependent states would also help even out the playing field.
PORTLAND, Ore., and SOMERVILLE, Mass., Aug. 17, 2010 — Efforts to pass climate legislation failed in Congress this year due, to a great extent, to economic concerns. But a new study shows that a simple approach that puts a price on carbon, then returns almost all the revenue to households, would effectively reduce greenhouse gas emissions without hurting most Americans’ incomes.
The study, authored by Elizabeth A. Stanton and Frank Ackerman, and released by Economics for Equity & Environment (the E3 Network), the nation’s largest network of economists focused on environmental issues, and the Stockholm Environment Institute-U.S. Center (SEI), modeled the potential impact of climate policies on households in each state, based on their current incomes, energy consumption, and the source of their electricity — since coal power, now very cheap, would be most affected by a price on carbon emissions.
What the economists found is that despite dramatic differences in states’ current greenhouse gas emissions, and in the additional costs households would face from higher utility rates, gasoline prices, and consumer-goods prices, if 85 percent of the carbon-policy revenue is returned to households on a per capita basis, the median household in every state would come out ahead. Overall, four-fifths of U.S. households, including all of the households with lower than average incomes, would gain more from climate rebates than they would pay in higher prices.
Just as important, the study found, as long as enough of the revenue is returned to households, the actual price put on carbon (via permits, a fee, or a tax) doesn’t change the outcome: The average family of four in every state still comes out ahead even with a very high price on carbon dioxide emissions. That’s fortunate, because the study also found that a price of $75 per ton of carbon dioxide — roughly twice what Congress has so far considered — would be needed to reach emission reduction targets for 2020.
“It is inevitable that some states fear carbon policy more than others,” said Kristen Sheeran, Ph.D., executive director of the E3 Network. “This study analyzes why carbon policy could impact some states more than others, and demonstrates how to design national carbon policy that taps the potential for energy efficiency, contributes to green investment and job creation, and protects household incomes in all states.”
“This study shows that we don’t need to be afraid of a high carbon price,” said Elizabeth A. Stanton, Ph.D., a senior economist at SEI and lead author of the report. “The higher the price, the better incentive it gives to reduce our emissions quickly. Our concern, instead, should focus on how the climate bills before Congress would rebate revenues to households.”
Stanton noted that none of the bills considered by Congress would have returned such a sizable share of carbon revenue to the people — nor would they have set a high enough carbon price, according to the study, to reduce greenhouse gas emissions as the bills aimed to do, 17 to 20 percent by 2020 (from 2005 levels), 42 percent by 2030, and 83 percent by 2050.
To help citizens and policymakers gauge how effective different approaches would be in both reducing emissions and minimizing economic impacts, Stanton and co-author Frank Ackerman, Ph.D., director of SEI’s Climate Economics Group, prepared a white paper offering seven questions to ask about climate policies:
Are the emissions targets low enough to do the job?
Will price ceilings interfere with emission reductions?
Will a significant share of revenues be rebated to households?
Are emission permits given away?
Are large-scale investments made in energy efficiency?
Is there a strategy for retiring coal plants?
Is green investment directed toward the states most affected by climate policy?
Both co-authors are available for interviews.
About Economics for Equity and the Environment Economics for Equity and the Environment (E3 Network) seeks to combat misleading junk economics popularized by climate skeptics. E3 Network organizes the expertise of economists from institutions across the U.S. who are developing and applying new economic arguments for active protection of human health, community prosperity, and the natural environment. The E3 Network is sponsored by Ecotrust. To learn more, visit www.e3network.org.
About the Stockholm Environment Institute The Stockholm Environment Institute (SEI) is a nonprofit international research institute focused on sustainable development and environmental issues. Its mission is to support decision-making and promote positive change by helping to bridge science and policy. SEI’s U.S. Center, one of seven worldwide, is an independent research affiliate of Tufts University, in Somerville, Mass. To learn more, visit www.sei-us.org.