Why we need fee and dividend

What is carbon fee and dividend?

We – Citizens Climate Lobby UK – believe there is a simple solution to climate change and pollution.

Fossil fuels are taxed at source, then this money (minus a cost-only administration fee) is divided equally between UK citizens.

It works by raising the cost of fossil fuels – oil, natural gas, coal – but gives citizens the money to cope with the price rise until cleaner, more efficient and cheaper technologies are available.

It also gives business the motivation and time to change from fossil fuels to cleaner energy.

Carbon fee and dividend works by using our economic system to influence people’s behaviour, ie to stop using fossil fuels and use a cleaner alternative that does not hurt our planet.

Now here’s why it’s needed.

What is the main cause of human-related climate change and pollution?

The main form of pollution and the biggest cause of the current climate change are fossil fuels – oil, natural gas and coal.

During the complete process of extracting or mining fossil fuels, refining them and transporting them, through to using them in products or – in particular – burning them, they pollute our water and air, and greatly contribute to the gases which trap heat in our atmosphere.

Fossil fuels have been amazing in supplying power and fueling the technological revolution we have seen since Victorian times.

But there are other ways to heat our homes, run our cars and businesses that don’t pollute the environment.

So why are we still using these fossil fuels if they have such a devastating effect on our climate and health?

Mainly because the pollution from fossil fuels – such as carbon dioxide and methane – is not taxed or penalised – except through the petrol pump – and it is currently the cheapest form of fuel. It’s expensive to change from one technology to another, and the UK currently doesn’t have the renewable power infrastructure or sufficiently advanced technology to supply all our power needs.

Imagine (perhaps you are old enough to remember) when all homes were heated by coal. How expensive was it to have central heating installed? But how much easier was central heating compared to an open fire? A quick turn of a dial and your home is heated, rather than buying and storing coal, cleaning the fireplace, lighting the fire, regularly stocking the fireplace and then the heat wouldn’t last until morning. Not to mention the pollution created by all those smoking chimneys.

These days if a home has a fireplace, it’s probably for a special occasion.

Our UK economy is like this. We are stuck with the open fireplaces of petrol and diesel engines, oil and gas heating, and fossil fuel generated electricity – because that initial outlay into new, better and cleaner technology is more expensive. And because fossil fuel pollution is currently mostly free.

And that makes fossil fuel the cheaper option.

So our solution, the solution of the worldwide Citizens’ Climate Lobby movement, is the carbon fee and dividend.

via Pixabay

This causes fossil fuels to become the more expensive option, and the initial investment into clean energy technology will become the cheaper option. It will speed up – for example – the creation of better electric cars and better battery power to store energy from wind and sun. And bring down the price of these options to the same or cheaper than the current fossil fuel options.

Eventually, the only petrol or diesel cars we see on the road will be for a special occasion.

Read this well-balanced article on fossil fuels by The Earth Project.

Here’s how the fee will work and the dividend, distributed.

1. Place a steadily rising fee on fossil fuels

Scientists know how much carbon dioxide is released by fossil fuels. So companies that mine, extract or import oil, gas or coal would be charged £10 per ton of carbon dioxide the fuel would release. This would go up each year by £7 per ton.

This should make clean energy cheaper than fossil fuel within a decade.

This process chart shows the basics of carbon fee.

Illustration taken from the Citizens Climate Lobby US-commissioned report, The Economic, Climate, Fiscal, Power and Demographic Impact of a National Fee-and-Dividend Carbon Tax (referred to as the REMI report).

2. Give all of these fees (minus administrative costs) back to households each month as a dividend.

The fee will not be kept by the Government.

The fee has these main aims:

  • to make fossil fuel the expensive option
  • to make clean energy the cheap option and to encourage investment in clean energy
  • to make sure most UK citizens are not hit in their purse as we move away from fossil fuel
  • to influence people’s behaviour away from fossil fuel
  • and, ultimately, to lower carbon dioxide emissions (and other polluting emissions) to within safe limits

It will cost money for the UK Government to collect the fee from fossil fuel businesses and distribute to household bank accounts, but once this administration fee has been taken, all of the rest of the money will be distributed equally to UK citizens.

This would be equal, monthly, per person dividend payments made to all UK households, with one half payment per child under eighteen with a limit of two per household.

How much better or worse off you might be depends on your ‘carbon footprint’ – or impact on the environment. So if you drive fuel-hungry cars, heat a big house or take a lot of flights then you may have less money because the cost of these will rise. But if you heat a regular sized house, run one or two economic cars and fly once or less per year, you would be better off financially or see no change. This way the poorer and most vulnerable households would be protected and even have more money to spend.

Citizens Climate Lobby US have done a lot of research on this. Their economists estimate about two-thirds of households will break even or receive more in dividends than they would pay in higher prices of fossil fuels and their products.

So if you want to drive a fast fuel-guzzler or be a jet-setter, be our guest. Just be prepared for the price to rise.

carbon dividend

Monthly projected share of the monthly carbon fee revenue across American households, courtesy of Citizens’ Climate Lobby US 2014 REMI report.

3. Healthy people, healthy economy.

The Citizens’ Climate Lobby US 2014 REMI report of the Environmental, Economic and Health Impact of Carbon Fee and Dividend on the American economy shows that carbon fee and dividend could reduce carbon dioxide emissions by half within 20 years.

This would prevent over 230,000 premature deaths over 20 years from improved air quality alone, on top of climate change reversal.

The dividend paid back to households could also create 2.8 million extra jobs.

The fee would focus business planning on clean energy investment.

Read more: the headlines from the REMI report

Each color in this chart represents one of the nine US regions. PAC=Pacific, MNT=Mountain, WSC=West South Central, ESC=East South Central, SA=South Atlantic, WNC=West North Central, ENC=East North Central, MA=Mid Atlantic, NE=New England.

Study on the effect on the US. Each color in this chart represents one of the nine US regions. PAC=Pacific, MNT=Mountain, WSC=West South Central, ESC=East South Central, SA=South Atlantic, WNC=West North Central, ENC=East North Central, MA=Mid Atlantic, NE=New England. Courtesy of the Citizens’ Climate Lobby US 2014 REMI report.

4. UK export business will have their carbon fee refunded.

When fossil fuel products enter the country they will be charged.

When fossil fuel products made in the UK leave the country, their fee will be given back to them.

Why? Because our UK industries still need to compete in other countries that don’t have a carbon fee and dividend in place. Our aim is not to put them out of business. We want to see UK business thrive in a sustainable way that doesn’t harm the planet.

Carbon fee and dividend should encourage business to move away from fossil fuels – not relocate to a different country without a carbon fee so they can carry on as before.

The fee aims to stimulate UK clean energy industry and energy efficient business and encourage other countries to adopt the carbon fee and dividend.

Read more about it here: border adjustment.

Carbon fee and dividend is simple. You can have your cake and eat it!