Can Cap and Dividend Save Cap and Trade?

There is no doubt that “cap-and-trade” has joined “liberal” on the list of terms conservatives have effectively tar-and-feathered. It’s also clear that a market-based system is the best way to reduce greenhouse gas emissions. The term needs political rehabilitation, for the planet’s sake. But how?

A recent study by NYU Law School’s Institute for Policy Integrity shows how a different take on cap-and-trade, known as “cap-and-rebate” or “cap-and-dividend,” could be the answer.

The study is actually an analysis of the CLEAR Act, ghg reduction legislation introduced by Senators Maria Cantwell (D-WA)  and Susan Collins (R-ME) last year which has, at least right now, taken a back seat to the Kerry-Graham-Lieberman bill due out April 26.

But that bill, known as KGL in lobbyist circles, will probably incorporate a version of the cap-and-dividend plan that is in the CLEAR Act. And if it doesn’t, it should. Here’s why.

The problem with cap-and-trade systems is that, by putting a price on emissions, they raise the cost of energy — there’s simply no getting around that fact. What’s worse, because the less well-off spend a greater percentage of their income on energy, they end up getting hit hardest by an increase in cost.

But in a cap-and-dividend system, when permits to pollute are auctioned off, a portion of the revenue from those auctions — 75 percent in the CLEAR Act — is redistributed to the public on a per capita basis. The rest is used to fund renewable energy.

The result is that “65-80 percent” of Americans would have a net financial benefit from cap-and-dividend, according to Michael Livermore, co-author of the NYU study. “When you set up a cap and dividend system the vast majority of Americans come out ahead,” he said.

“For people on lower income side of spectrum the cap effects them more in terms of direct energy cost, but for people on the higher end the cap is affecting them more in terms of indirect costs of consumption, the energy used in the manufacturing of things,” said Livermore. Richer people spend more money, and thus accumulate more costs associated with energy use.

Of course this formulation brings up another politically loaded term: “income redistribution.” Interestingly, demonizing that topic has not gotten as much traction as “cap-and-tax.” Americans seem more receptive to progressive taxation; most resistance to the healthcare overhaul, for instance, did not focus on the increased taxes on the wealthy in the bill.

BC (Ben) Upham is a freelance writer based in Los Angeles. He has written for the New York Times, and was a writer and editor for News Communications, Inc., a local paper consortium serving Manhattan. When he's not blogging on green issues -- and especially renewable energy -- he's hiking in the Angeles Mountains or hanging out at El Matador.

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