Carbon Fee and Dividend

What is Carbon Fee and Dividend

Carbon Fee and Dividend is the policy proposal created by Citizens’ Climate Lobby (CCL) to internalize the costs of burning carbon-based fuels. It’s the policy that climate scientists and economists alike say is the best first-step to reduce the likelihood of catastrophic climate change from global warming.

Citizens’ Climate Lobby volunteers pride themselves in being FOR something rather than AGAINST things. So Carbon Fee and Dividend is the policy our citizen volunteers around the world are advocating FOR.

Read the policy and answers to
frequently asked questions below

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Why Carbon Fee and Dividend?

As long as fossil fuels remain artificially cheap and profitable, their use will rise. Correcting this market failure requires their price to account for their true social costs.

To gain multipartisan support we advocate for a true cost-comparison between competing fuels AND reducing greenhouse gas emissions.

What Will It Do?

A national carbon price, with full revenue return and border adjustments, will do four things: internalize the social cost of carbon-based fuels, rapidly achieve large emission reductions, stimulate the economy & recruit global participation.[1]

The Basics of Carbon Fee and Dividend


Place a steadily rising fee on the CO2 content of fossil fuels.

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Give all of the revenue from the carbon fee back to households.

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Border adjustments will discourage businesses from relocating.

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It's good for the economy AND even better for the climate.

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Want to know more about Citizens’ Climate Lobby?

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Carbon Fee and Dividend In-Depth

Below you’ll find Carbon Fee and Dividend described in detail and answers to frequently asked questions or FAQs. Additionally, how Carbon Fee and Dividend impacts the climate and economy in the USA is detailed in the REMI report.   Here is a  one pager summary of the the REMI report.

The Policy

Download Carbon Fee and Dividend, a full-text version of CCL’s Carbon Fee and Dividend proposal (2 pages) available in English and French. Please also see our one page cartoon describing our proposal, also available in French and English.


  1. Causation: Whereas scientific evidence indicates that greenhouse gas emissions from burning fossil fuels and other sources are causing rising global temperatures,
  2. Mitigation (Return to 350 ppm or Below): “Whereas a return from the current concentration of approximately 400 parts per million (“ppm”) of carbon dioxide (“CO2”) in the atmosphere to350ppm CO2 or less is necessary to preserve a planet similar to that on which civilization developed and to which life on Earth is adapted,”
  3. Endangerment: Whereas further increases in global temperatures pose imminent and substantial dangers to human health, the natural environment, the economy and national security and an unacceptable risk of catastrophic impacts to human civilization,
  4. Co-Benefits: Whereas the measures proposed in this legislation will also benefit the economy, human health and the environment even without consideration of global climate disruption, as a result of reductions in non-greenhouse-gas pollutants,
  5. Benefits of Carbon Fees: Whereas predictably rising carbon fees on fossil fuels are the most economically efficient, transparent and enforceable mechanism to drive a transition to a low-carbon economy, by giving all businesses and individuals a powerful incentive to reduce their carbon footprints,
  6. Equal Monthly Per-Person Dividends: Whereas equal monthly dividends (or “rebates”) from carbon fees paid to each Canadian household will equitably recycle revenue obtained from carbon fees, and can help ensure that families and individuals can afford the energy they need during the transition to a clean energy economy.

Therefore the following legislation is proposed:

  1. Collection of Carbon Fees/Carbon Fee Trust Fund: Beginning July 1, 20XX, impose a carbon fee on all fossil fuels (oil, coal, and natural gas) at their first point of sale. Yearly price increases shall continue until Canada’s total CO2 emissions have declined to 10% of the level of Canada’s CO2 emissions for calendar year 1990. Every five years the Ministry of Finance, in consultation with the Ministry of the Environment, will conduct a study on the economic and environmental impacts of the carbon fee, to determine whether an increase in the rate of annual increase of the carbon fee to greater than $10/tonne CO2 /year is required to achieve Canada’s short-term greenhouse gas reduction targets. In no case, however, shall the annual increase in the carbon fee be less than $10 until the target of 10% of calendar year 1990 emissions is reached.
  2. Equal Per-Person Monthly Dividend Payments: The revenue collected from carbon fees shall be distributed as equal monthly per-person dividend payments to be made to all Canadians (1/2 per child under 18 years old, with a limit of 2 children per family).
  3. Border Adjustments: In order to ensure that Canadian products can remain competitive, Carbon-Fee-Equivalent Tariffs shall be charged for goods entering Canada from countries without comparable Carbon Fees/Carbon Pricing. Carbon-Fee-Equivalent Rebates –may also be used to reduce the price of exports to such countries.
  4. Direct use of Fuel: Direct use of a fossil fuel by a producer or importer shall be subject to the carbon fee in the same manner as if the fuel were sold.
  5. Emissions from Non-Fossil Fuel Sources: The Ministry of Finance, in consultation with the Ministry of the Environment, will develop assessment procedures to the end that all readily measurable greenhouse gas emissions not arising from fossil fuel combustion (e.g. CO2 emissions associated with industrial processes; methane release) will also become subject to the Carbon fee, based on their CO2-equivalent greenhouse gas potential.
  6. Phase-Out of Fossil Fuel Subsidies: All existing subsidies of fossil fuels including tax credits shall be phased out over the five years following enactment.
  7. Moratorium on New or Expanded Coal-Fired Power Plants: Beginning on the date of enactment, there shall be no new coal-fired power plants permitted or constructed. There shall also be no expansion in capacity of any existing coal power plants.
  8. Seeking Treaties: The Government of Canada shall seek treaties with other countries that encourage adoption of programs similar to the ones provided for in this Act to reduce CO2 and other greenhouse gas emissions.

Frequently Asked Questions (FAQs)

Why is Carbon Fee and Dividend Necessary?


This legislation will put us on the path of a sustainable climate by reducing our greenhouse gas emissions and transitioning us to a clean energy economy. Since the beginning of the industrial revolution we have increased the level of greenhouse gases, especially carbon dioxide (CO2), in our atmosphere. Scientists warn that this is having a drastic effect on our climate. Changes that would normally take thousands of years are happening in decades. Current concentrations of heat-trapping CO2 are higher than at any time in the entire history of the human species on Earth. In effect, we have covered the Earth with a large blanket of greenhouse gases and the Earth is warming up. The oceans are absorbing this increased carbon dioxide in the atmosphere, making them more acidic. Eventually, this acidity will affect the oceans’ ability to support life.


What is a carbon fee?


It is a fee based on the amount of carbon in a fossil fuel. Fossil fuels such as oil, gas and coal contain carbon. When burned they release the potent green house gas, carbon dioxide (CO2), into the atmosphere. The fee is based on the tonnes of carbon dioxide the fuel would generate, and it would be collected at the earliest point of entry into the economy — well, mine or port. The fee would start out low — $15 per tonne — and gradually increase $10 each year.


What is the difference between a “tax” and a “fee”?


A tax has the primary purpose of raising revenue. By contrast, a fee recovers the cost of providing a service from a beneficiary. Since the CCL advocates for revenue-neutrality and a policy that doesn’t grow the government, we are advocating for a fee, not a tax. However, for purposes of discussion you will find carbon tax and carbon fee used interchangeably, and referring to the same type of legislation. This is fine, and don’t let it get in the way of the discussion. The tax or fee do the same thing, which is to include the damage that carbon is doing to our climate, oceans, and health in the price.


How much will the carbon fee affect energy prices?


The best example would be gasoline. A $10 per tonne increase in the carbon fee would equal about 2 pennies on the price of gas. So if the carbon tax started at $15/tonne, gasoline would go up by about 3 cents per litre the first year and 2  cents each year afterward.



What is the dividend?


The dividend is defined as the quantity of revenue to be rebated to Canadian households. In this case, 100 percent of the total carbon fees collected are divided up and given back to all households equally. This dividend helps citizens pay the increased costs associated with the carbon fee while our nation transitions to a clean energy economy. Because not everyone uses the same amount of carbon, the majority of Canadian households (about 66 percent) are estimated to earn back as much or more than they pay in increased costs [1].

[1] See our laser talk “Carbon Fee and Dividend” for greater details and references.


How does Carbon Fee and Dividend legislation work?


Carbon Fee and Dividend legislation puts a fee on the amount of carbon dioxide in fossil fuels. This fee is assessed at the source of the fuel: at the mine, well, or port of entry. The fee starts out low and increases annually in a predictable manner until we reach a safe level of emissions. The fee is collected exclusively at the first point of sale, and 100 percent of the revenues are reimbursed directly to all Canadian households, shielding them from the financial impact of the transition to a clean energy economy. Because the fee (and the price of fossil fuel) goes up predictably over time, it sends a clear price signal to begin using fossil fuels more efficiently or replace them with low emissions energy. That price signal motivates investment to move into low emissions technologies, as the true cost of fossil fuels is brought back onto the balance sheets of those who sell them. The rising cost of fossil fuels increases the demand for low emissions products, making them even less expensive as they reach mass production. This clear and easy-to-understand price signal (increasing fossil fuel costs and decreasing clean technology costs) drive the transition to a low carbon economy. This transition will reduce greenhouse gas emissions, stabilizing our climate and the health of our oceans.


What are the consequences if we do nothing?


We are already experiencing the warning signs of climate change — more extreme weather, longer droughts, worse flooding, warmer average ocean and surface temperatures, disappearing glaciers, melting ice caps and snow fields, increased land desertification, rising ocean levels, ocean acidification, and the mass extinction of animal species because they cannot move fast enough or adapt soon enough to the changes in their habitat. We are already at climate reinforcing points (when warming speeds up). A good example is the North Pole’s ice cap which is over water. This ice cap has traditionally reflected 90% of the solar radiation, which falls on it, back into space keeping the ocean underneath cold. This icecap is disappearing in the summers allowing the open ocean to absorb most of the heat. This is speeding up the warming of the water and melting of the icecap. Our top climate scientists warn us that we need to bring CO2 levels in our atmosphere back down to 350 parts per million (ppm) or lower. We are currently at 400 ppm and rising by 2-3 ppm annually. This is what is forcing our climate to warm, and because oceans absorb a large percent of this CO2, our oceans are becoming more acidic.


How is this legislation fair to businesses, utilities, manufacturers, services, farms?


By giving all of the carbon tax back to households — the end users — consumers will be able to pay the higher prices of goods and services caused by the higher price of fossil fuels. This allows businesses to pass along the increased cost and keep market share. Each year the carbon tax goes up, the dividend goes up as well. Everyone is on a level playing field for the first few years. But if businesses do not become more energy efficient and start converting to low-emissions energy, they will become less competitive and lose market share. These market forces will drive innovations in low-emissions technology, creating new business opportunities to develop, produce, install and service these products. This will create millions of new jobs here in Canada. Canadian companies will be able to sell these technologies globally and Canadian companies will become more efficient with the energy they use, making them more competitive worldwide.


Why will citizens change to low-emissions technologies if they are given a dividend to pay for the increasing price of fossil fuels?


With Carbon Fee and Dividend legislation, it is clear to citizens that prices for fossil fuels will go up every year. Part of their motivation is to save as much of their dividend check as possible rather than spending it on more expensive fossil fuels. They can do this by changing over to energy efficient lighting and appliances, upgrading their insulation or windows, replacing that old oil furnace with a geothermal heat pump, etc. When it comes time to get another vehicle, they would consider one that gets better gas mileage or an all-electric vehicle. They can then buy clean electricity (where available) through their utility to charge their car, getting them off fossil fuels altogether. The motivation is to reduce cost in the years to come. The same is true for investors and for fossil fuel companies: as the fee increases, and the cost of doing business rises with it, the rising dividend will ensure that the true cost of doing business will be paid by those in that business.


How will our manufacturers remain competitive?

The CCL legislative proposal calls for placing a border adjustment levy on all imports from countries that do not price carbon similarly, giving no company an incentive to move production to a country that allows them to pollute more at lower cost [2]. Because the Canadian consumer economy is so much more valuable than any other in the world, foreign countries that export heavily to Canada will likely choose to institute a similar carbon price, to avoid sending huge amounts of capital to the US. Either way,Canasdian and foreign manufacturers will lose no ground economically for producing products with a lower carbon footprint.

Additionally, the legislative proposal calls for rebating the border adjustment fee to Canadian companies exporting to countries without similar carbon pricing, leveling the playing field for our companies and complying with the World Trade Organization (WTO).

[2] See our laser talk “Border Tax Adjustment” for greater details and references.

Why will the adoption of Carbon Fee and Dividend legislation put Canada in the leadership position on climate change?


Because of the carbon fee border adjustments, exporting countries will either adopt similar carbon pricing, or pay at our border. All countries that adopt similar taxes on carbon are on the same level playing field and can make border adjustments with countries that do not adopt such taxes. This encourages all countries to place similar taxes on carbon. As more nations adopt carbon taxes, worldwide demand brings the best clean technologies to mass market faster, driving down costs and making the transition to a low carbon economy less expensive for everyone.


What is clean tech


Clean tech is any technology that reduces waste, increases energy efficiency, or produces low- or no-carbon energy. By reducing waste you actually save energy. Recycling aluminum cans for example, uses only about 5 percent of the energy needed to make aluminum from ore. Energy efficient technologies include Light-Emitting Diodes (LEDs) and Compact Florescent lighting, energy star appliances, efficient building design, high efficiency windows, hybrid and all electric cars, etc. Clean tech includes those technologies that help us use fossil fuels more efficiently. Clean energy (also know as green energy) is energy produced by sources — solar, wind, wave, geothermal, – that do not contribute to total greenhouse gas emissions.


How many new jobs will be created if we adopt Carbon Fee and Dividend Legislation?

National employment increases by 2.1 million jobs after 10 years, and 2.8 million after 20 years. This is more than a 1% increase in total US employment we don’t get without Carbon Fee and Dividend!

See our laser talk “Job Results” for greater details and references.


What benefits will Canada receive by addressing climate change through Carbon Fee and Dividend legislation?


  1. We will stabilize our climate and oceans and slow down the mass extinction of species.
  2. It will put Canada in a position of leadership on climate legislation and in clean technology. Governments will be forced to adopt the same carbon price levels as we do or pay at our ports for the privilege of polluting.
  3. It will decrease our dependence on foreign oil, substituting low-carbon energy made in the U.S. The U.S. spends billions annually on imported oil. When we substitute that for clean energy made in Canada, it creates jobs.
  4. Decreasing our dependence on foreign oil increases our national security. Much of our military budget is spent protecting the free flow of oil and propping up the bad governments that control it.
  5. The transition to clean energy will clean our air of smog, ozone, fine particulate matter and other pollutants caused by burning fossil fuel. It will clean our lakes, rivers, and oceans from the mercury poisoning caused by burning coal, the leachates from coal mine tailings, and salt brines from drilling.
  6. We will gain a sense of national pride by tackling and achieving a tough goal together, leading the world not in the industrial revolution or the information age but in the Clean Technology Revolution. Most of the clean technologies we know of today were developed and tested in Canadian laboratories only to be brought to market in other countries because those governments had national energy policies encouraging the adoption of clean energy. We have already lost millions of jobs by holding on to the centuries-old technology of fossil fuels while other countries are transitioning to clean-energy economies. It is time we regained the lead.


Why is Carbon Fee and Dividend better than Cap and Trade?


Cap and Trade was used by some early signers of the Kyoto Protocol, the first international treaty to address climate change. Though most early adopters tried hard to make it work, Cap and Trade was not easy to understand, energy prices swung wildly, consumers paid the whole cost of the experiment, and it was not very effective in reducing total CO2 emissions. Much of the reason for this was because of offset credits. Power providers could buy offset credits that allowed them to burn more fossil fuels, but the offset credits did not actually reduce total CO2 emissions. Carbon traders and offset investors made lots of money. Utilities and manufacturers had increased costs that were passed on to the consumer. No real reduction in CO2 was achieved and the consumer was stuck with the bill. Carbon Fee and Dividend, on the other hand, is easy for everyone to understand, it gives the end consumer 100 percent of the proceeds of the carbon fee to help pay for the transition to clean energy, there are no offset credits or carbon credits to manipulate and no one technology is singled out to win or lose. Only with inaction over several years do you become disadvantaged. With action you become more efficient and competitive. The free market picks the winning and losing technologies. Low-emissions energy and efficiency measures become cost competitive as prices rise for fossil fuels. As we transition to clean technologies and green energies, CO2 emissions are reduced. Investments in clean tech spur the development of innovative technologies that we export to other countries. Canada regains leadership in the clean tech revolution.


Why target a 90% reduction in 1990 emissions by 2050?

This target was set to keep warming below 2 degrees centigrade. The 2007 IPCC report (AR4*) contains a table for the emissions reductions relative to 1990 emissions necessary to stabilize the climate at different thresholds. The actual range in the report is 80-95% reduction below 1990 levels, so our target reflects the mean of those numbers plus a little cushion to be conservative and get a round number.

[4] Working Group 3, chapter 13. Ref this link for pdf download, page 776.


Why the CCL rate of increase in the carbon fee?

Basically, we’re aiming to achieve the IPCC goal of 80-95% emissions reductions below 1990 levels by 2050 [4]. If Carbon Fee and Dividend is enacted, CO2 emissions will decline 33% after 10 years and 52% after 20 years relative to 1990 levels. [5] While the IPCC report states that Annex I countries (which includes the US) need to achieve 25%-40% emissions reductions relative to 1990 by 2020, the CCL bill language allows for adjustments in the rate of increase to meet science-based emissions targets.

[4] IPCC AR4 Working Group 3, chapter 13. page 776.

[5] Regional Economic Modeling, Inc. and Synapse. Summary of “The Economic, Climate, Fiscal, Power, and Demographic Impact of a NationalFee-and-Dividend Carbon Tax.”

Why upstream?


A carbon tax may be assessed upstream (at the coal mine, oil well, or fracking site), mid-stream (at the power plants or oil refinery), or down-stream (at the gas pump or at the meter). Canada’s number one trading partner is the USA and our energy systems and economies are intricately linked together. Synchronizing carbon pricing policies across borders will reduce red-tape for Canadian companies that trade North-South. CCL USA has chosen an upstream point to collect the tax because it is simpler to administer and opens the possibility of keeping the carbon price for exports [7]. The export clause of the US Constitution (Art. I, Sec. 9) forbids domestic taxes from being included in exported products. However, there is case law that indicates a “severance fee” does not have to be refunded at the border. A carbon tax can only be considered a severance fee when it is assessed upstream. As climate change is a global problem, making the carbon fee stick to coal, in particular, which is exported abroad, is of interest in solving the global climate crisis. Assessing the fee upstream, while returning 100% of the revenues to households, allows the solution to span the entire marketplace, with no new bureaucracy.

[7] Astoria, Ross. “The Export Clause and the Constitutionality of a National Cap-and-Trade CO2 Mitigation Policy”. Forthcoming in Spring issue of the Georgetown International Environmental Law Review.


Why revenue neutral?


Academic papers studying a carbon tax indicate that a carbon tax with 100% revenue recycling can boost the economy, even before considering the economic benefits from improved health and less severe climate impacts [8]. Thus, CCL has chosen to advocate for a policy that will restore the climate
and boost the economy.

[8] See the laser talk “Economic Effect of a Carbon Tax” for more complete discussion and references.


Why a dividend?


Academic studies that consider the economic effect of a revenue-neutral carbon tax generally consider a dividend less beneficial (but still very beneficial) than a tax-swap [8]. A tax-swap means using the revenue to reduce any combination of payroll, income, or corporate taxes. However, these studies also say that though these tax-swap policies, especially corporate tax-swaps, result in a marginally larger economy, extra measures would have to be implemented to help the poor, because none of these tax-swaps will help the unemployed; including millions of retirees.
Because CCL values simplicity and transparency, because economists say the poor must be taken care of, because the difference in economic efficiency is marginal, and because a dividend will still boost the economy when health and climate benefits are accounted for, the CCL advocates for the only revenue return mechanism that reaches every Canadian. Reaching everyone is indispensable for the success of any carbon price because when gas is $1.00 per gallon more expensive (year 10 in CCLs policy) [1], the poor will not be able to afford it with any of the tax-swap mechanisms of return, and the bill would be repealed. Only a dividend can simply, transparently, and fairly help everyone afford the price increases, ensuring support of the policy until we have restored the climate, and giving the Main Street economy time to adjust.


Why a border adjustment?

Though many other countries have carbon prices in some form [10], none of these are a match for the physics of the climate, and none employ a border adjustment [9]. Without a border adjustment, both Canadian exporters and foreign importers would find themselves with an incentive to relocate production to countries with a more relaxed regime, polluting more for the same good. This is called “carbon leakage“. In the interests of the climate, it is therefore necessary to refund the carbon fee on goods exported and impose a carbon fee on carbon intensive goods imported. While there are widespread concerns about how such a border adjustment could be compatible with World Trade Organization (WTO) law, these concerns are ill-founded. WTO experts have written documents explaining how this could be achieved, and it is clear that the CCL proposal is consistent with the requirements these experts outline [2].

[9] “Climate and Carbon: Aligning Prices and Policies”. October 2013. OECD Environment Policy Paper No. 1.

Who would administer the border adjustment?


The State Department.


Why increase by a dollar amount?

There are three possibilities for increasing the carbon fee: increasing by a dollar amount, increasing by a percentage, or not increasing at all. CCL has chosen an annual dollar amount increase because of simplicity, effectiveness, and the economy.

Simplicity: it is easy to understand that the carbon price will be $15 in the first year, $25 in the second, and $35 in the third, etc. By contrast, you need a calculator to figure out that under S. 332, which uses a percentage increase, the carbon price is $20 in the first year, $21.12 in the second year,
and $22.30 in the third year [10].

Effectiveness: a dollar increase achieves substantial health and climate co-benefits at an earlier date. For example, there are $120 billion in mostly health-related costs incurred each year by the burning of fossil fuels [11]. Fewer emissions today means more lives saved today.

Economy: A carbon fee that doesn’t change in price and still enables us to meet emissions reductions targets needed for a stable climate would have an unwelcome effect on the economy. By contrast, a % increase would not give Canadian businesses the price signal they need to be competitive with European and Chinese companies rapidly developing and deploying fossil-free technologies. A dollar increase strikes a balance between these two extremes.

[10] Senator Bernie Sanders. S. 332: “The Climate Protection Act of 2013”. Introduced Feb 14, 2013.

[11] See the laser talk “Climate Change is a Medical Emergency” for more complete discussion and references.