Imagine this, you work at a large company that offers on-site parking for free. There are enough parking spots for 50% of the employees. Because parking is free, everyone wants to drive their car into work and park on-site. Obviously, this situation is not sustainable since only 50% of people can actually park.
So instead, the company charges a small fee for each parked car and the revenue from this fee is returned to all employees in equal payments at the end of each month. Not only does this fee reduce the demand for parking, it goes much further.
People who park pay for the convenience, and those that find alternative transportation methods (public transit, carpooling) make out like bandits.
Sound too good to be true? Well it sort of is, which is why proposals like a carbon fee and rebate (sometimes referred to as a carbon tax or carbon dividend) have garnered bipartisan support in the United States and many other countries across the globe.
How would a Carbon Fee and Rebate system work?
The federal government would start by putting a price on carbon dioxide emissions. Proposals have suggested pricing carbon dioxide emissions at $15-50/ton at first, then raising the price gradually to further incentivize emissions reductions and account for inflation. The price should match the “social cost of carbon,” but not every economist would agree on how to determine that number.
Let’s take the economist William Nordhaus’s proposal for example:
“ …based on the social cost of carbon emissions… an optimal price of carbon is around $30(US) per ton… [I]f a country wished to impose a carbon tax of $30 per ton of carbon, this would involve a tax on gasoline of about 9 cents per gallon. Similarly, the tax on coal-generated electricity would be about 1 cent per kWh, or 10 percent of the current retail price. At current levels of carbon emissions in the United States, a tax of $30 per ton of carbon would generate $50 billion of revenue per year.”
Ideally, though, that fee will be taken as close to the extraction source as possible. that means the fee would be paid at the port of entry for imported oil, or the first time that a fossil fuel is sold from a domestic mine or well.
What happens to all that money?
It would be paid out to American citizens to help cover the slight increase in costs and to help people afford transitioning to a greener lifestyle. That’s why it’s considered a “fee” as opposed to a “tax,” because it doesn’t increase the size of the treasury, it simply redirects the funds from huge corporations to the average person.
Won’t a carbon fee increase prices?
Yes, the prices of some things would increase, but it’s estimated that ⅔ of Americans would receive more from the rebate than they would pay due to price increases. And a rebate would help the poorest Americans most, possibly making a significant positive difference for retirees, young families, rural farmers, small-town Americans, etc.
Also, the prices of items that don’t require fossil fuels wouldn’t increase, making greener purchases more attractive and affordable!
What are your thoughts? Does this sound like a good plan to you?
