Roosevelt Institute | Cornell University

Fee and Dividend Carbon Taxation

By Alex PundykPublished November 9, 2014

Following the formal recognition by Secretary of State Chuck Hagel of climate change as a threat to American national security, we are provided governmental confirmation of the widespread and interconnected consequences of global climate change. Among the foremost policies devised to chokehold carbon pollution by manufacturers, "Fee and Dividend" allegedly offers the most economically beneficial system of taxation and redistribution of fees. But can the economic conjectures of climate scientist's fare against the contestation of scholars of the international political economy?

By Alex Pundyk, 11/9/14

In what must have been a decidedly "Finally!" moment for myriad climate scientists, lobbyists, activists and the concerned general public, United States Secretary of Defense Chuck Hagel issued in an address on Monday, October 13 that climate change is an unequivocal threat to national security. The announcement came in the wake of a statement made by Secretary of State John Kerry this past May, offering research collected by the government-funded CNA Corporation Military Advisory Board, ascertaining the far-reaching consequences of climate change and its anticipated influence on American foreign policy. The threats listed in the both the May address and the more recent, amplified statement issued by Hagel include "rising global temperatures, changing precipitation patterns, more extreme weather and rising sea levels… [implying] the impact they could have on food and water supplies, the environment and American security itself".

Apart from apocalyptic projections that coastal cities in the United States, including New York City, Miami and Sacramento may be underwater less than 100 years from now, ravaging effects of climate change have already manifested themselves less obviously by rooting militaristic turmoil, while posing a continued threat to international political stability. Hagel describes such catalysis as a "threat multiplier" in that "increased drought and flooding has been linked to a warming planet [that] could yield food instability, helping to drive mass migration and pushing desperate people into extremist groups". Not only must American forces then offer political structure through military occupation of an array of affected areas such as the Artic Sea lanes, Eastern India, Africa and the Middle East, but they must also provide humanitarian effort in supporting devastated, developing nations. In short, climate change has, is and will be a very big problem on a global and regional scale, but more specifically for America as the world hegemonic power.

So what, then, must the country that is second among the top ten carbon polluting countries on the planet do to stop such damaging climate change? The steady introduction of renewable and sustainable energy forms has in slight acted to mitigate carbon dependency; farfetched concepts of geoengineering contraptions offer if nothing else fantastical visions for change. But a solution devised to spur and influence the collective reduction in carbon pollution on a significant scale makes use of the most singularly powerful intra and international stronghold afforded by the United States: the economy. The policy is known as Fee and Dividend and given the sense of urgency expressed by Hagel in regard to climate change, such drastic economic implementation may be closer than ever.

As devised by James Edward Hansen, former professor at the Columbia University Department of Earth and Environmental Sciences, as well as nearly 50-year member of the NASA Goddard Institute for Space Studies, the Fee and Dividend tax system would instate carbon taxes on corporate production of carbon. The terms of the theory provide that:  First, a fee is charged at the point of origin or point of import on greenhouse gas emitting energy (oil, gas and coal). Second, the fee is progressive (increases gradually) over time. Third, the fee is returned to the public. The power in the policy comes from the direct taxation and disincentive put upon high carbon producing manufacturers, and conversely the economic benefits granted to the private sector, as it becomes less carbon dependent, disposing the returned fee on sustainable energy sources. Additionally, the policy would allow for clean energy sources to emerge in a financially attainable way while fossil fuels become increasingly rife with taxes, providing protective measures for the lower and middle income brackets; before the system was instituted in part by the Canadian government in 2008, it was predicted that 66% of the Canadian households would break even or receive more in the dividend, than they would paying for the cost of energy. When shifting the policy to the premier international political economy in the world, that of the United States, the importation of carbon-expensive products would lead to the direct taxation of such goods and ultimately encourage the international exchange of carbon-efficient products.
The logic is solid, yet not watertight: Will the fee just cause companies to raise their fees on the public so there will be no net change in cost? Shouldn't we concentrate on enabling new technologies and businesses to develop needed technology and methods to solve this problem by enabling market forces to drive solutions? Besides, shouldn't climate scientist's stick to climate science and let economists handle the economy?

No policy rests in political agnosticism. Fiscal conservatives may view this influence as a categorical overstepping of boundary, toward Socialist strong holding. Even the very declaration of climate change as an immediate and imminent threat to national security upset domestic Conservative politicians who described the announcement as a distraction from "other, legitimate, threats around the world". But global crises do not operate in zero sum, and the magnitude of peril comes from the ways in which disasters can be interwoven; how climate change leads to volatile weather patterns, drought, disease, ideological extremism, military turmoil. The recognition of the urgency for action as voiced by Secretary of Defense Hagel, and the maturing of policies aimed toward reducing global carbon pollution such as the Fee and Dividend offer at once an exciting likeliness that influential policy may be instituted, yet make clear the urgency of the present, and impending consequence of the near future.