The Carbon Dividend Is Not A Tax

You’ve heard of the Carbon Tax and Dividend, or the Carbon Fee and Dividend.

Here is what you need to know:

1) It is a good strategy for speeding up the critically important energy transition, aka, electrification and decarbonization of our energy supply.

2) It is opposed by most (but not all) Republicans, which tells us that opposing it is evil.

3) It is not a tax. Not. A. Tax.

There was just a Republican effort to pass a resolution that makes the dividend harder to pass by Congress. This was not a law, and had no real meaning, but it was a dog with a bit of a bite. The resolution simply said that “carbon taxes” are detrimental to the US economy. This dog has little bite because it is not a law, and this dog won’t even hunt because the carbon dividend is not a tax.

“Why is it not a tax?” you ask. “Of course it is a tax, just under another name,” you say. But you are wrong, it is not a tax. Let me explain.

First, how a tax works.

Sirius and Tyrell (made up companies) each make widgets. The old fashioned, physical kind, not the ones used on WordPress blogs. Both use some fossil fuels to produce their product.

Sally, Doto, and Ibhan all love widgets, and buy them frequently.

One day the government decides that Sally, Doto and Ibhan need a new road. So, they tax Syrius Inc and Tyrell Inc products, 10 dollars each, and raise $20, plenty enough to build the road (which, in this small mind-experiment country, is also built by Sally, Doto and Ibhan, so they get both jobs and a road in one fell swoop!)

That was taxation.

Next, everyone realizes that the fossil fuels that Syrius and Tyrell are using to make the widgets harm the environment. So, an incentive system is deployed, a carbon dividend system. Some call it a tax and dividend system, but it is not a tax, so that is wrong. Others call it a fee and dividend system, but the word “fee” is just another word for “tax,” and is in fact a term used primarily by Republicans that allows them to raise taxes, but lie about it. So that is wrong too. So, let’s just call it a “carbon dividend.”

Anyway, here is how it works. If you use fossil carbon based strategies (raw materials or energy) to make your product, you have to pay. Who do you pay? Everybody. Everybody gets a piece of the pie, and you provide the pie.

Given the amount of fossil carbon based material used to make a traditional widget, the total amount that would be charged to either Syrius or Tyrell is $15, if they don’t change their ways.

Syrius, it turns out, is serious about the environment, so they quickly deploy non-fossil carbon methods to make their widgets, while Tyrell continues using the old ways, and pays the carbon dividend amount of $15. This payment is made to the populous, not the government. The government in this theoretical universe, only enforces the payment, they do not collect the payment.

So, here is what happens.

Tyrell pays $5 each to Sally, Doto, and Ibhan. This causes Tyrell to raise the price of their widgets.

Sally, Doto, and Ibhan each now have extra money, which of course, they will use to by more widgets. But the Tyrell Widgets are more expensive than the Syrius Widgets, and otherwise they are the same. Doto and Ibhan also love the fact that the Syrius Widges have zero carbon footprint, so they strongly prefer them and buy them instead of the Tyrell Widgets.

Syrius gets more business, does better, and out competes Tyrell, and Tyrell goes out of business. Now, the wonderful world of widgets worldwide is fossil fuel free and that is the end of that version of the story.

No taxes were paid, the world was changed, end everybody except for the owners of Tyrell corporation live happily ever after.

There are two variants of this story I’ll add in.

First, note that in the version above, Sally wasn’t happy with the fossil carbon free product. In fact, Sally is a right wing yahoo who prefers to see coal mining continue and hates the environment. She punches hippies in her spare time. So, she continues to buy the Tyrell widgets.

This causes Tyrell to stay in business a little longer. And, it causes Sally to be less financially viable and therefor of less consequence in this dollar-eat-dollar hypothetical free market world. Tyrell takes a little longer to go out of business, and Sally has a less happy life. Same story, just with a little more misery or misery prolonged. They shoulda done what they shoulda done, but they didn’t, so don’t cry for them.

Second version, and one you probably already thought of. Syrius Corp has to pay more to produce their product using fossil carbon free resources. In that case, the process takes a bit longer. But, you see, the price on carbon is set on the basis of that differential, so that Tyrell would pay more to use fossil carbon than Syrius would pay to use clean sources. So it still works.

Funny thing, though. Generally speaking, fossil carbon free energy sources are actually cheaper than the fossil carbon based methods. So, the carbon dividend system doesn’t really compensate for cheap fuel sources, but rather, it compensates for the culturally based or bought and paid for resistance to decarbonization. It punishes the hippie punchers and rewards the tree huggers.

And that is the main reason for the opposition to it.

In other news, a “carbon tax bill” is being considered by the Republican Congress, and has some Republican suport. From Reuters:

A decade of inaction by the U.S. Republican Party on climate legislation will end next week when one its own offers a carbon tax bill, which is sure to fail in the House of Representatives, but is notable for winning even a little Republican support.

Representative Carlos Curbelo of Florida, a member of the House tax committee, said he will unveil the bill on Monday.

The measure was expected to propose replacing the federal gasoline tax with a tax on businesses calculated by how much oil, coal and other fossil fuels they buy.

“When paired w/ regulation changes, infrastructure investment & the repeal of regressive taxes — like I’ll be proposing Monday — it can protect our environment & protect economic growth,” Curbelo said of his proposal on Twitter.

The Curbelo legislation marks a small but meaningful shift for his party on climate politics, driven in part by candidates in swing states where increasing hurricanes and floods make no distinction between Republicans and Democrats.

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3 thoughts on “The Carbon Dividend Is Not A Tax

  1. Depends how it’s measured billyR. I didn’t read your link (unlike you, I don’t like racists, bigots, liars, white supremacists, nazis, and their ilk, but those are the people who run free beacon), but the numbers given are total emissions (with a timeline by Pruitt that doesn’t make sense, as he references 2000, and emissions continued to go up after 2000). However, those numbers are total, but the per-capita numbers for the US still put us at/near the top. A little more honesty in Pruitt’s statements would have been nice, but we can’t expect that.

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