Genuine climate justice means thinking big when it comes to economic inequality. A 'carbon fee and dividend' would reduce emissions and poverty.
Extinction Rebellion (XR) is demanding that the UK reduce carbon emissions to net zero by 2025. This is reasonable, but if we're going to get there so quickly we need to be talking right now about how we can achieve this. XR is perhaps wise to avoid making detailed proposals – any specifics risk splitting the movement over the fine detail. Better to leave it to their third demand - a Citizen’s Assembly.
Drastic reductions in fossil fuel use are, to many, a frightening prospect. Jacob Rees-Mogg suggests that XR want to take us back to living in caves; others indicate that taxing carbon is dangerous – it was the catalyst for the Gilets Jaunes protests in France.
Fee and dividend
There is no doubt that carbon neutrality will entail significant adjustments to our ways of living, but there could be a major silver lining. One key mechanism on the table - Carbon Fee and Dividend - could drastically cut emissions while creating positive social impacts. It is being seriously considered in Ireland and Canada, and is supported by the Citizen’s Climate Lobby in the USA. A statement published in the Wall Street Journal in January 2019 calling for a carbon tax and dividend (another name for the same idea) has been signed by 3,000 American economists.
The basics of Fee and Dividend are simple. Carbon extraction becomes chargeable, and the money raised is returned to the population as a cash grant or regular basic income. Some schemes propose using a carbon cap alongside the fee, so that total emissions can be directly controlled without relying on price rises to curtail demand.
There remains, however, a major fly in the ointment if this process happens only at the national level. Applying carbon fees on a country by country basis would require border checks on all fossil fuels, to assess the level of carbon fee that has been paid in the fuel's country of origin and to charge an appropriate 'Border Carbon Adjustment' to ensure the fee is brought to the same level as that paid in the importing country.
This becomes even more complex when applied to goods like steel and fertilisers that require heavy fossil fuel use in their production, and it could stray into the absurd if attempting to account for the embodied carbon content of all imports. A whole new professional field of carbon accountancy would be required, as we attempt to calculate the footprint of every imported good, from petrol and cement, to Colombian roses and Kenyan green beans. Carbon fee avoidance schemes and 'carbon havens' may even arise, in a sad 21st century mirroring of today's tax havens.
Finally, and disastrously, the carbon dividend money would end up in the countries that extract and import the most fossil fuels. These high-polluting nations and citizens are the ones that least need or deserve these revenues. Such a scheme would create perverse incentives for people to continue polluting, as doing so would boost basic income payments.
Climate change is a global problem and it requires a global response. A far simpler and more globally just solution would be to apply the Carbon Fee and Dividend system at the global level, so carbon can be both capped and taxed at source, and the dividends distributed fairly to people worldwide.
This has the unusual merit of being relatively easy to enforce. Just 100 companies produce 71 percent of all carbon extracted. A scheme could be introduced immediately, whereby these companies are required to buy a licence for every tonne of carbon they produce. For this to be achieved it would need the leadership of just two countries, the USA and the UK, as this is where the majority of fossil fuel firms are registered. Convincing the Russians and others to get on board may be tricky at first, but international pressure and trade sanctions could be ramped up to make any exceptions difficult to sustain.
The enormous sums of money that would be raised by a carbon fee should be given back to the all the world's people as a dividend. Rather than benefiting people in polluting countries, those with a low carbon footprint - the poor - would benefit the most.
To make the scheme successful, we must charge the right price for carbon. The IMF recently concluded that to keep global temperature rises to 2°C we would need to implement a carbon price of at least $70 per tonne. This compares to the average $2 per tonne carbon price that is charged in current emissions-trading schemes according to the IMF.
A 2°C temperature rise is still much too high if we are to contain the worst extremes of climate change, so a strict cap and probably a higher carbon price will be necessary. Nevertheless, for now we will base our calculations on the IMF recommendation. If we assume the carbon cap starts at this level then decreases by 15 percent (of today's output) every year for five years, this would bring us to 25 percent of today's carbon emissions by 2025.
Let's assume we raise the carbon price by 15 percent of the original each year, starting at the IMF recommendation of $70. This scheme would raise $2.5 trillion in the first year which is enough for $28 a month in basic income for every woman, man and child on the planet. Over five years the reduction in carbon extraction mandated by the cap gradually reduces the dividend to $12.25.
Transfers at this level seem small to people in richer countries. Those lucky enough to find this amount underwhelming could either not apply to receive it, or could see it as a small compensation for the changes in lifestyle they will have to undergo as part of the transition to a low carbon economy. This might include retraining or driving less, though living in a cave will, happily, not be required. The dividend could help to neutralise the sense of grievance that generated the Gilets Jaunes protests.
Most people in the Global South would find a dividend at this level transformative. Considering that it would be received by every member of a family including children, this would be a significant income boost that would end the worst extremes of poverty and open up new life opportunities. Most importantly, it would give us all a fair share in the revenues from our global commons.
Although the fee would rise as the cap reduces, the scheme inevitably raises far less money for a carbon dividend once the cap begins to bite. It could even reduce to zero if we end all carbon extraction. What happens then to the monthly dividends we have all been enjoying? At this point, we have a choice. We can allow them to fade out, and remember them as a brief but helpful boost for global equality. Alternatively we could expand the scheme to incorporate new revenue streams deriving from the global commons, and turn it into a true world basic income.
There are plenty of global common spaces as well as our atmosphere - such as the oceans, international airspace, and the satellite zone. Other spaces, such as the land and mineral beds, were once commons and we could choose to treat them as such for taxation purposes.
Profitable use of these common spaces and resources could be made chargeable, thereby generating rents for the people that could be distributed as world basic income. These spaces would benefit from the protection that use-taxes would bring, just as the atmosphere would be improved through the Carbon Fee.
Through this scheme, private land ownership, aviation, shipping and deep sea mining could all be taxed. Radio frequencies (used for GPS, TV and many other uses beyond radio programming) and satellite space could be rented out on behalf of the world's people rather than given to corporations for free. The data we all generate that has enriched Google, Facebook, Amazon and Apple could be taxed, with money added to the collective pot.
Financial transactions (which are profitable thanks only to our common monetary system) and intellectual property (which is generated through use of historic common knowledge) could also provide a rich source of revenues. Significant historical wealth could be returned to the people in common rather than retained through inheritance.
In these ways, and even without the carbon dividend, we could easily set up revenue streams that would generate $50 a month for every person worldwide. In time, as more commons resources are covered, this could rise to several hundred dollars a month.
These proposals are radical, but we live in incredible times.
The risk of catastrophic climate change forces us to think big. If we are to achieve climate justice, rather than just climate action, we need responses that consider and respond to economic inequalities.
The Carbon Fee and Dividend is one such response, that has the astonishing potential to drive us briskly towards net zero while temporarily ending extreme poverty. By establishing the principle that the earth is a global commons, the Carbon Fee and Dividend would also lay the groundwork for a wider transformation in our thinking. As its economic benefits dry up, we could use its infrastructure and the shift in thinking to kickstart a worldwide basic income that would give us all a fair share of common wealth in perpetuity.
In this way, Carbon Fee and Dividend represents a practical solution to our most pressing human problems. It could transform our current crisis into an opportunity to embrace our common heritage and march forward towards real global justice.