Pure Cap-and-Dividend

A Plan to Reduce Carbon Emissions by 100% by 2040 and 150% by 2060

No, that’s not a typo. I’m proposing that the United States implement a plan to reduce its net greenhouse gas emissions to zero by 2040 and then achieve negative emissions equal to 50% of today’s emissions by 2060. Yes, that means removing massive amounts of carbon pollution from the atmosphere. This proposal is not modest but climate change is not a trivial problem.

To achieve this ambitious goal while maintaining a strong economy, we need to adopt a broad-based, revenue-neutral, market-driven greenhouse gas cap-and-dividend program – let’s call it Pure Cap-and-Dividend.

How Pure Cap-and-Dividend Works

Pure Cap-and-Dividend is designed replace a hodge-podge of federal and state policies aimed at reducing greenhouse gas emissions. Instead of inefficient subsidies that disproportionately benefit the rich in the name of the environment (topics to be explored further elsewhere on CapCarbonNow.com), under Pure Cap-and-Dividend, we will have a cap on annual carbon emissions. (I’m using “carbon” and “greenhouse gases” interchangeably here; Pure Cap-and-Dividend will address greenhouse gases in general, measuring their impact in terms of metric tons of carbon dioxide equivalent.)

The emissions cap will gradually lower each year until it hits zero at the end of Phase 1 of the program (in 2040). Further, Pure Cap-and-Dividend will reward activities that remove greenhouse gases from the atmosphere, allowing us to achieve negative emissions during Phase 2 of the program (2041 through 2060).

I’ll expand on the details of—and the arguments for—Pure Cap-and-Dividend in future postings on Cap Carbon Now. For now, here are the essentials:

Establish an Emissions Cap.  Congress sets a cap for annual greenhouse gas emissions, with the cap dropping steadily each year from 2018 through 2040, when the cap reaches zero.  Each year, the Environmental Protection Agency creates a quantity of emissions permits equal to the cap for that year. Each permit allows the holder to emit the greenhouse gas equivalent of one ton of carbon dioxide. The EPA sells the permits at auction to the highest-bidder, much like the Treasury Department sells treasury notes. Once purchased at auction, businesses may trade permits, just as businesses today buy and sell other commodities ranging from corn to crude.  At year’s end, each emitter must surrender permits in a quantity matching its greenhouse gas emissions or face meaningful penalties. (The penalty must be greater than the cost of the permit.)

Don’t confuse Pure Cap-and-Dividend with those namby-pamby cap-and-trade proposals that include the government giving away emissions permits for free, typically to large emitters.  While such handouts might have made sense decades ago, today they would only reward poorly run businesses for their lack of foresight.  Any company worth its salt should already be planning for a low carbon economy.

Cast a Wide Net.  Often cap-and-dividend (or cap-and-trade) proposals are limited to covering emissions from power generation and a few other industries (e.g., cement production). In fact, many proposals address emissions caused by burning fossil fuels at a power plant but ignore the emissions generated in producing and transporting those same fuels to the plant. For example, methane that may be released during the fracking process or which escapes from pipelines is not counted even though it accounts for a significant amount of greenhouse gas emissions.

Pure Cap-and-Dividend will be as expansive as possible, and will include power generation, transportation (primarily by requiring emissions permits for fuel sales at the initial wholesale-level, based on the greenhouse gas emissions potential of those fuels), agriculture, and landfills, among other industries.

The broader the program is, the more opportunities there will be for innovations that reduce emissions at the lowest possible cost—while responding to consumer preferences.

Keep It Revenue Neutral. Pure Cap-and-Dividend is revenue neutral—we won’t be raising taxes or running up more debt. The program will be funded by the sale of emissions permits during Phase 1. Half of the proceeds from such sales will be rebated in equal portions to American citizens (except that children will receive a 50% share). The other half of the proceeds will be used, in Phase 2 to purchase offsets as described below.

Reward Offsets.  Pure Cap-and-Dividend includes credits for “offsets.” That means that there is a financial incentive for either causing the avoidance of emissions that would otherwise take place or outright removing greenhouse gasses that are already in the atmosphere. Though often misunderstood and dismissed as a gimmick, offsets make carbon reductions more affordable (they help to increase the supply of “permits”) and they provide the path forward for achieving negative net emissions. If we don’t develop incentives for taking greenhouse gases out of the air, we limit our ability to heal the earth.

Under Pure Cap-and-Dividend, a business that can demonstrate that it has permanently removed greenhouse gases from the atmosphere will receive a “credit” for each metric ton of carbon dioxide equivalent that it has removed. These “offset credits” will be treated just like the emissions permits sold by the government.

Offset credits must be limited to real, verifiable reductions and strict penalties must be assessed when people try to cheat the system. Offsets will be discussed in greater depth elsewhere on CapCarbonNow.com. For now, suffice to say that given the amount of greenhouse gasses we’ve pumped into the atmosphere over the past 200 years, stopping emissions won’t be enough. We need to go further and reduce the “locked in” warming that will occur from the excess greenhouse gases already lingering in the atmosphere.

From 2041 through 2060 (Phase 2), instead of selling any permits, the government will purchase offset credits (and unused emissions credits) in a reverse auction whereby sellers bid offsets credits they’ve already earned for removing carbon from the atmosphere and the government will purchase the most credits possible (meaning the least expensive credits) within its annual credit purchase budget (funded from the remaining 50% of proceeds that the government collected from permit sales during Phase 1).

Free the Market. Pure Cap-and-Dividend corrects a flaw in our economic system. Currently, producers are free to emit greenhouse gases without limitation despite the fact that these emissions impose a heavy cost on by society at large. Pure Cap-and-Dividend creates a financial incentive for producers to minimize their greenhouse gas emissions in order to keep their prices down—just as they have a financial incentive to minimize other costs—from raw materials to fuels to labor. Consumers will have a financial incentive to avoid products and services that are greenhouse gas intensive. The “invisible hand” of the market will finally be put to work helping the environment.

Demand Global Action. By adopting Pure Cap-and-Dividend, America will demonstrate to the world that we are committed to addressing climate change. America has a special responsibility to lead the world toward a solution. After all, historically, the United States has emitted more greenhouse gases than any other nation. And, more importantly, America has a dynamic, innovative, economy that can lead the way.

That said, we cannot go it alone. Therefore, a Pure Cap-and-Dividend policy should include a provision that will automatically scale back emissions reductions to more modest targets starting in 2020 unless either (a) the United States has ratified an international treaty under which binding, enforceable targets have been established or (b) the United States Senate passes a resolution extending the program with the original targets.

That’s the stick. Here’s the carrot: Pure Cap-and-Dividend will provide that the emissions reduction targets will be made even more ambitious if so required in order for the United States to meet its obligations under any ratified treaty. In effect, Pure Cap-and-Dividend is pre-wired for an international treaty.

Move Quickly. Climate change is happening now and we need to act now. You will not find a more comprehensive approach than Pure Cap-and-Dividend. And while it’s a policy designed to appeal to a bipartisan crowd, it will require the type of political action we haven’t seen in many years.

So spread the word. Invite others to read about Pure Cap-and-Dividend. Subscribe to this website for updates. Like Cap Carbon Now on Facebook. Follow the discussion on Twitter. Debate the merits of Pure Cap-and-Dividend versus other policies. Send an email to your member of Congress, or your favorite candidate—let him or her know about Pure Cap-and-Dividend. The transformation starts here, with you.