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

 

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.

The Basics of Carbon Fee and Dividend

1

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

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2

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

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3

Border adjustments will discourage businesses from relocating.

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4

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

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Carbon Fee and Dividend In-Depth

In September 2018, a study commissioned by Clean Prosperity showed that the vast majority of households, regardless of income level, would receive more money in the form of carbon dividend cheques than they would pay in carbon taxes, should the federal government introduce carbon dividends in those provinces in which it brings in its carbon tax “backstop” starting in 2019.

In 2013, Citizens’ Climate Lobby Education commissioned Regional Economic Models, Inc. (REMI) to study the effect of a revenue-neutral carbon price on the American economy. Chosen for its track record of providing analysis to both governmental bodies and the fossil fuel corporations, REMI’s analysis concluded that such a system would have strong positive economic effects on the nation’s health and prosperity alike. REMI’s analysis concluded that, during the first 20 years alone, a CF&D policy would lead to:

  • A 50% reduction of carbon emissions below 1990 levels
  • The addition of 2.8 million jobs above baseline, driven by the steady economic stimulus of the energy dividend
  • The avoidance of 230,000 premature deaths due to reduction in air pollutants that often accompany carbon emissions
  • Download our one page visual on 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.

Check out our cartoons describing carbon fee and dividend
in English (pdf) and in French (pdf):

 

 

 

 

The Carbon Fee and Dividend Solution

Whereas:

  1. Causation: Scientific evidence indicates that greenhouse gas (GHG) emissions from burning fossil fuels and other sources are causing rising global temperatures,
  2. Mitigation: A return from the current concentration of over 400 parts per million (ppm) of carbon dioxide (CO2) in the atmosphere to 350 ppm 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. Paris Agreement: In 2015 Canada was among the 195 countries that approved the Paris Agreement as part of the UN Framework Convention on Climate Change. The central aim of the Agreement, which Canada ratified in 2016, is to strengthen the global response to the threat of climate change by keeping global temperature rise this century to well below 2 degrees Celsius and preferably limited to 1.5 degrees Celsius,
  4. Endangerment: Further increases in global temperatures pose imminent and substantial dangers to human health, the natural environment, the economy, national security and an unacceptable risk of catastrophic impacts to human civilization,
  5. Co-benefits: As a result of reductions in non-greenhouse gas pollutants, the measures proposed in this legislation will also benefit the economy, human health and the environment even without consideration of global climate disruption,
  6. Benefits of Carbon Fees: Predictably rising carbon fees on GHG emissions 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 and to develop and make available low and no carbon alternatives,
  7. Twice-Yearly-Per-Person Dividends: Equal twice-yearly dividends from carbon fees paid to each Canadian person 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. Equal Twice-Yearly-Per-Person Dividend Payments: The federal government will lead by example and also strongly encourage the provinces and territories to return revenue from carbon pricing directly to households. In provinces and territories where the federal backstop is implemented, the revenue collected from carbon fees in that jurisdiction shall be distributed as twice-yearly per-person-dividend payments in January and July to every household to help ensure that families and individuals can afford the energy they need during the transition to a greenhouse gas-free economy and the dividends will stimulate the economy, 
    2. Border Carbon 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 pricing. Carbon fee equivalent rebates may also be used to reduce the price of exports to such countries. If alternative mechanisms such as output based pricing systems are used, such measures must be targeted, temporary and transparent,
    3. Rising Carbon Price: The federal carbon price, as outlined in the Greenhouse Gas Pollution Pricing Act 2018, shall be extended to increase past 2022. The annual rate of increase shall never fall below $10/tonne CO2e (adjusted for inflation) until Canada meets our GHG reduction commitments consistent with the goals of the Paris Agreement. Establish CO2 equivalent fees for other GHGs including at a minimum methane, nitrous oxide, sulfur hexafluoride, hydrofluorocarbons (HFCs), perfluorocarbons, and nitrogen trifluoride,
    4. Phase-Out of Fossil Fuel Subsidies: All existing subsidies of fossil fuels including tax and royalty credits shall be phased out within five years. Support for natural gas must also be phased out as the government has committed to decarbonizing the electricity sector,
    5. Carbon Budgets: In order to reach our commitments under the Paris Agreement’s goals on time, a carbon budget shall be developed to quantify the amount of GHG emissions that can be emitted in total over each 5 year period through 2050. Mechanisms shall be built in to adjust the carbon price as needed to ensure targets are being met,
    6. Complementary Policies: Carbon pricing is the simplest and most cost-effective way to lower GHG emissions, but in circumstances where it is economically advantageous complementary policies should be implemented,
    7. Maintain the moratorium on New or Expanded Coal-Fired Power Plants: The Government of Canada must maintain its plans to phase out coal-fired power plants by 2030,
    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

What is carbon fee and dividend necessary?

The climate crisis is real, dangerous and we must emissions. We have precious little time left to argue.  Cooperation is necessary if we are to insure a liveable world in 2040 as so diligently outlined in the IPCC’s 1.5C October 2018 Report.

Thank goodness the vast majority of Canadians grasp this fact and that there are many Canadian politicians who are willing to expend political capital by listening to the experts and thereby price carbon pollution to protect us.

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 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.

A September 2018 study commissioned by Canadians for Clean Prosperity determined that the vast majority of Canadians would come out ahead with carbon fee and dividend.

In Canada we will receive our first carbon dividend in April 2019 and it will be called the “Climate Action Incentive” which be sent to residents living provinces where the backstop policy applies.

Will carbon fee and dividend cut emissions?

Yes, that is the whole point of pricing carbon pollution.

We trust the experts and the vast majority of economists say that although not a stand-alone for addressing the climate crisis, pricing carbon pollution is the most economically efficient way to reduce emissions.

Did you read the IPCC’s 1.5C October Report?  We are at the cusp of global disaster and carbon pricing is key for creating a liveable world in 2040.

As well, the 2018 Nobel Prize in economics went to Yale economist William Nordhaus  (alongside New York University economist Paul Romer) for carbon pricing.

In British Columbia, from the time the BC carbon tax was introduced in 2008 and steadily increased until 2011, GHG per capita from sources subject to the carbon tax dropped by 10% but only 1% in the rest of the country. BC’s GDP also performed better than the rest of Canada during that time frame.  Read Sustainable Prosperity’s report on the BC carbon tax here.

A 2014 US study by Regional Economic Models, Inc. (REMI) examined the impact of a steadily-rising fee on carbon with revenue returned to households. Among other findings, the study shows that, after 20 years, a fee on carbon dioxide rising $10 per ton each year would reduce greenhouse gas emissions 52 percent while adding 2.8 million jobs to the economy.

Fig 3.14 - REMINat

Is pricing carbon pollution enough to avert disaster?

No, it is not enough.

Although, Citizens’ Climate Lobby has focused on carbon pricing since 2010 in Canada we recognize other initiatives are necessary to avert disaster and so does the Canadian government.

We encourage you all to build political will for other important initiatives using our formula: build a broad base of support, use non-partisan methods, focus on a well-researched policy, build alliances with like-minded groups, and be patient as these things take a lot of time.

The PanCanadian Framework on Clean Growth and Climate Change recognizes that other programs are necessary.  Here is summary of their suite of programs with carbon pricing in perspective:

 

 

 

 

 

What else has the government done to reduce GHGs in 2018?

Let’s all agree we need all hands on deck and thus, we need to cooperate and lots need to be done.

Let’s also take stock of what has happened in the last year.

Here is a really good example of reducing GHGs that you may not be aware of.  Canada was the host of the G7 this year and enacted the G7 Oceans Plastic Charter and pledged to reduce plastic garbage. At current trends, the plastics industry could consume 15 percent of the world’s total carbon budget by 2050. 

Here are more examples:

 

 

 

 

 

 

 

 

 

 

Why not use carbon pricing revenue for other programs?

Ideally, we need a carbon price of at least $150.00 tonne by 2030. However, forty-eight percent of Canadians are within $200 each month of financial insolvency (IPSOs Reid Data January 2018). Clearly, carbon pricing needs to be revenue-neutral and therefore, the government must use other sources of revenue to balance the budget and other social concerns.

What revenue streams could be used to help the transition?

What we need is tax reform. A streamlined and efficient income tax program would secure more money for the government coffers. We could end subsidies to the fossil fuel industry. Closing tax havens would generate billions of dollars. Ending the CEO stock-option loophole would generate 750 million per year. Canada should also consider inheritance taxes.

For details go here: https://canada.citizensclimatelobby.org/laser-talk-balancing-the-budget-the-climate-crisis-and-social-concerns/

 

 

 

 

 

Can Canada reach the Paris Climate Targets without carbon pricing?

In one word: no.

In the spring of 2018, the Pembina Institute launched an online climate policy simulator that is freely available for all to use. The simulator allows the user to assess the effectiveness of individual policies on greenhouse gas emissions from Canada to mid-century.

Assuming all provinces sign on to the Pan Canadian Framework on Clean Growth and Climate Change and successfully implement climate action plans aligned with the PCF, Canada is likely to meet the 2030 Paris agreement objective a 30 % cut in emissions by 2030. Deep decarbonization by mid-century would likely require additional policies. If you remove carbon pricing from the model, the core driver of emissions reduction is gone. The only other option is a complex series of specific policies within each economic sector, which is much more expensive for the
taxpayer. In fact, other policies activated in the simulator to 100% still does not arrive at the same result for emissions reduction as is the case with carbon pricing in effect.

The take-home message in working with the Pembina policy simulator is that, in agreement with the consensus of climate change economists, carbon pricing is an essential core component of a cost-effective climate plan.

 

 

 

 

 

 

 

How does Carbon Fee and Dividend legislation work?

Carbon Fee and Dividend is a revenue-neutral price on carbon that functions as follows:
• A fee is placed on carbon-based fuels at the source (well, mine or port of entry).
• All of the money collected is returned to Canadians on an equitable basis.
• Under this plan most Canadian households would break even or receive more in their dividend check than they would pay for the increased cost of energy, thereby protecting the poor and middle class.
• A predictably increasing carbon price will send a clear market signal which will unleash entrepreneurs and investors in the new clean-energy economy.
• It includes border tax adjustments on imports from jurisdictions without equivalent carbon pricing to prevent leakage and spur our trading partners to price carbon.
Check out our cartoons describing carbon fee and dividend
in English (pdf) and in French (pdf):

 

 

 

 

Do the big polluters get a free pass under the Federal Carbon Pricing Policy?

In one word: No.

Certain industries will be subjected to output based carbon pricing which means they still pay a carbon price, rewards best in their industry and penalizes carbon laggards.

Here is an overview of the Federal Backstop carbon pricing policy for more context:

 

 

 

 

 

 

Why not just enact border carbon adjustments instead of output-based carbon pricing?

For years CCL has advocated for Border Carbon Adjustments (BCA) to help with competitiveness issues and carbon leakage when Canada imposes a carbon pricing policy.

    • BCAs are tariffs thus perceived as protectionist and thus a rallying cry of a trade war
    • Diplomatically speaking you would give your trading partners a couple years notice at least that they were coming
    • BCAs are complicated to set-up and take time to pass through the World Trade approvals
    • BCAs are thus a huge expenditure of political capital
    • BCAs are not really necessary at carbon prices below $40. For example British Columbia’s carbon tax is at that price without BCAs.

In conclusion, BCAs require a fully functioning carbon price which we don’t have yet. Thus, we will follow the adage and not put the cart before the horse. We are however at CCL Canada working with appropriate federal agencies and have asked them to study BCAs so that we have solid data to help us generate the political will for BCAs when the time comes.

What about small businesses?

Ottawa has earmarked $1.5 billion dollars to help small business with carbon pricing.

As well, in 2017 and 2018 CCL Canada secured over 260 signatures from small business for a predictably rising carbon price for Canada.

Why would a small business want a predictably rising carbon price? So that they can plan for the future. As well most homes and businesses are not covered by overland flooding – thus they are at risk for losing everything.

What about people living in rural communities?

As an organization not headquartered in Toronto, Ottawa, Montreal or Vancouver we applaud that people who live outside big cities will get 10% more to account for a higher reliance on fossil fuels and lack of access to things like public transit.

We are headquartered in Sudbury.

For example, people outside of Toronto may not know this but Greyhound Service will no longer run buses west out of Sudbury ON as of October 31, 2018 leaving no-service between Sudbury and Vancouver.

Northern Ontario’s train service was culled by the Ontario government  in 2012 despite there being a need and if properly designed an economic case for it. And Via Rail service outside of the highway 401 corridor in Ontario – Quebec is just not convenient.

 

What are the consequences if we do nothing?

The October 2018 IPCC  Special Report on Global Warming of 1.5ºC sent a clarion call for action.  Ninety-one authors and review editors from 40 countries prepared the IPCC report in response to an invitation from the United Nations Framework Convention on Climate Change (UNFCCC) when it adopted the Paris Agreement in 2015.

The report’s full name is Global Warming of 1.5°C, an IPCC special report on the impacts of global warming of 1.5°C above pre-industrial levels and related global greenhouse gas emission pathways, in the context of strengthening the global response to the threat of climate change, sustainable development, and efforts to eradicate poverty.

One of the key messages that comes out very strongly from this report is that we are already seeing the consequences of 1°C of global warming through more extreme weather, rising sea levels and diminishing Arctic sea ice, among other changes.

Every extra bit of warming matters, especially since warming of 1.5ºC or higher increases the risk associated with long-lasting or irreversible changes, such as the loss of some ecosystems.

Limiting global warming would also give people and ecosystems more room to adapt and remain  below relevant risk thresholds, added Pörtner. The report also examines pathways available to limit warming to 1.5ºC, what it would take to achieve them and what the consequences could be.

In combination with complimentary measures, carbon pricing is a key component of limiting global warming.

 

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 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.

penny

 

But keep in mind, most Canadians would come out ahead with what the additional costs on pollution compared to what they get back from the government.

 

 

 

 

 

 

 

 

 

What about China?

China prices carbon.

Obviously we all do need to do more and we need to do it together if the world is to avert disaster.

What about the rest of the world?

Here is the latest data from the World Bank

  • 53 Carbon Pricing initiatives implemented or scheduled for implementation
  • 46 National Jurisdictions are covered by the initiatives selected
  • 25 Subnational Jurisdictions are covered by the initiatives selected

In 2018, these initiatives would cover

  • 11 GtCO2e, representing 19.8% of
  • global GHG emissions
  • Total value  of carbon pricing initiatives in 2018 = $81.68 Bn (USD)

 

 

 

 

 

 

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

  1. We will do our fair share to 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.
  3. It will extend the lifetime of a valuable non-renewable resource in Canada: petroleum, which is a critical component of many industrial processes and every items.
  4. 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.

Do medical doctors support carbon pricing

The World Health Organization and Médecins sans Frontières have identified climate change as the greatest threat to global health in this century. The Canadian Medical Association(CMA) policy paper on Climate Change and Human Health concludes that the global community needs to act together to address the health and environmental impacts of climate change. In August 2015 the CMA passed motion DM 5-21 to promote a strong, predictable price on carbon emissions. In light of the health risk of climate change we at CCL support physicians that ask that all Canadian political parties commit to reducing greenhouse gas emissions by putting an effective price on carbon.

Did the BC carbon tax fail to reduce GHG emissions?

In one word: no.

From the time the BC carbon tax was introduced in 2008 and steadily increased until 2011, GHG per capita from sources subject to the carbon tax dropped by 10% but only 1% in the rest of the country. BC’s GDP also performed better than the rest of Canada during that time frame.
Read Sustainable Prosperity’s report on the BC carbon tax here.

Show me more proof that carbon fee and dividend will work?

We have already mentioned the REMI study and the BC Carbon Tax.  Here is more proof that carbon fee will work.

 

 

 

 

 

 

 

 

 

 

Do you want to help us build political will for liveable world?

For Canadians who want to build political will in their ridings: