The many advantages of a predictably rising carbon price with dividend
A good way to explore this Playbook is to scan through this list and check out the ones that grab your attention. There are links to more detailed articles in the Playbook itself. Other articles are yet to be written so the detail for some of the advantages is yet to come.
Here are the advantages we have thought of so far. In no particular order: -
Emissions reduction - A predictably rising price on the carbon content of fossil fuels is the easiest and most efficient way to phase out the burning of fossil fuels which are the cause of around 80% of global emissions. The price signal simultaneously supports the phase-in of zero carbon alternatives. Why price carbon - and how?
Less inequality - An efficient carbon price phases in diverse and broadly distributed energy sources that are much less prone to exploitation, corruption and oligopoly. Household and community-generated energy reduces energy dependency and the wealth inequalities that follow.
Social Justice - A monthly dividend paid to all households protects low- to middle-income households from rising costs that flow from a carbon price - and they can benefit further by choosing increasingly cheaper lower carbon goods and services. In effect, the dividend transfers fossil fuel subsidies to households and enables them to participate in decarbonising the economy by spending on low-carbon living.
Reverses wealth flows - The climate dividend slows down the” trickle-up” of wealth to the already wealthy while boosting the incomes of people on low wages and benefits.
Cost of living relief - a climate dividends policy would provide regular income to all Australian households and give significant relief to low-income households whose lower than average carbon consumption would enable their dividends to go further.
Ending subsidies and ‘rent-seeking’ - ‘Explicit’ fossil fuel subsidies can be ended through government budget decisions but ending ‘implicit’ subsidies to fossil fuels can only be achieved by a carbon price – it does this by including their ‘social costs’ (to climate, environment and health) in their selling price.
Reduced ‘rent-seeking’ - A predictably rising price plots a clear trajectory towards zero carbon and reduces the opportunity for “rent-seeking” by fossil fuel producers.
Addresses supply as well as demand - most climate policies aim to reduce demand for fossil fuels by promoting and building renewables which does not necessarily discourage producers to keep on producing. By pricing the carbon content of fossil fuels upstream, at the point where they enter the economy, climate dividends also discourages the production and supply of fuels while incentivising low carbon alternatives.
Reduced corporate power - the simplicity and potential popularity of climate dividends can give governments the confidence to stand up to those corporations and powerful individuals who are unable to recognise that their interests are contrary to the interests of humanity, including themselves.
Adresses a dangerous societal addiction - Societies, governments and economies around the world have become addicted to fossil fuels in ways that now endanger civilisation. Climate dividends gives humanity the opportunity to wean off fossil fuels. The dividend will be critical for households dealing with the transition to a zero carbon economy.
Eliminates contradictory policies - by phasing out subsidies, climate dividends take our foot off the emissions accelerator (subsidies and other encouragements to fossil fuels) and allow the brakes (emission reduction policies) to work. See Climate and energy – competing policies
Lowest cost - Most decarbonisation policies and programs require taxpayer support and it is widely acknowledged that they will be expensive. An explicit carbon price pays for much of the transition by eliminating wasteful and counterproductive subsidies that cost the taxpayer through climate, environment and health costs.
Enables global pricing - The carbon border adjustment that is integral to climate dividends gives other countries a strong incentive to introduce their own carbon price. Once a few major economies have carbon border adjustments, the rest of the world will follow suit and emissions will reduce more quickly and evenly. Australia could join the EU in leading the way.
Its popular - Returning a dividend to all households will make carbon pricing more popular and less vulnerable to populist manipulation. Where sufficient information about the benefits of the climate dividend is provided and disinformation is fully corrected, the price will be acceptable to a majority of citizens. A similar price in Canada has survived 2 elections and a high court challenge. See Why have a dividend in a carbon price?
Comprehensive yet simple - By pricing all fossil fuels, Climate Dividends is a comprehensive policy capable of reducing emissions steadily and quickly. The alternative piecemeal approach is complex, uncertain and unable to address all fossil fuel-originated emissions. Its simplicity is also a big advantage; it is much easier to understand than the many piecemeal policies it can replace.
Predictable and controllable - The carbon fee rises predictably over time, preferably at $15/tonne or more per year. The rate of rise gives all stakeholders a clear signal that enables rational planning, investment and adaptation. The alternative is a great deal of uncertainty, disruption and crashes in parts of the economy and unnecessary delays in adaptation and transition.
Even fossil fuel companies can benefit - A carbon price with dividend can benefit everyone in the medium to long term. Whilst losing short term profits, fossil fuel companies will benefit from a predictable price signal that enables them to plan their own transition and reinvest in zero carbon options. Steady emissions reduction will reduce the economic, social and political disruptions flowing from a warming climate.
Increases energy security - Climate dividends will drive a steady transition away from imported fossil fuels and enable Australia to be self-sufficient in energy, possibly within 20 years, depending on the rate at which the price rises and how quickly clean energy supplies come online.
Clean air - better health - Phasing out fossil fuels by means of a carbon price quickly removes highly polluting particulates and harmful gases from the air that humans must breathe, reducing death and morbidity in Australia’s cities. When emissions reduce enough for global cooling to begin, fewer deaths from heatwaves, floods and droughts will occur. Climate Change - Doctors for Environment
Protects Environment - Extracting, processing, transporting and burning fossil fuels has many harmful consequences for many aspects of the environment other than the climate - ocean acidification, species extinctions, etc. The number of difficult ministerial decisions falling under the EPBC Act will decline as fossil fuels phase out.
Addresses revenue shortage - Australia has a revenue shortfall following decades of tax minimisation and increasing wealth disparity. Ending wasteful fossil fuel subsidies and paying a climate dividend to households will phase out a serious drain on taxpayer funds and redirect them to households where they will boost the low carbon economy.
Assists tax reform - by removing inefficient fossil subsidies climate dividends removes a serious distortion in our tax system and may encourage the removal of other counterproductive subsidies. It adds weight to the value of taxing the things we want less of - carbon, tobacco, etc and taxing less the things we want more of.
Phases out plastics - As fossil fuels become more expensive due to carbon pricing, the cost of virgin plastic will also rise and wasteful use of plastics will decline. (see Our ‘Ending Plastic Pollution by 2040’ policy needs a carbon price.) Research and innovation into alternatives to plastic will be boosted by a price on carbon and economies and societies will adapt to a world without fossil fuel-based plastics.
Its efficient - Under a carbon price the wasteful use and abuse of fossil fuels will be replaced by more efficient production and use of energy. Fossil fuels are inherently wasteful as most of their energy is lost in production, distribution, burning and only around 20% becomes useful energy for powering human activities. Subsidies keep them artificially cheap and even easier to waste.
Reduced waste - fossil fuel energy has underpinned rapid growth of production, consumption and disposal of crippling amounts of material goods, leading to insurmountable problems of pollution, environmental damage and waste management.
Improved national security - Climate change is considered a ‘threat multiplier’ by military analysts. Global warming is destabilising communities around the world and displacing large groups of people, creating refugee flows that have already sparked major conflicts in West Asia and North Africa. Australia is vulnerable.
Reduced geopolitical tensions - large income and wealth disparities due to differential access to fossil fuels can easily lead to conflict, now best illustrated in the fallout from Russia’s invasion of Ukraine. See Climate Change and National Security.
Stabilised population - Fossil fuels have enabled rapid population growth over 200 years which, combined with climate change is leading to food, water and land shortages that will inevitably spark conflict. Phasing out fossil fuels can help to slow down global population growth, further reducing pressure on climate, environment and resources.
Simplifying government – less regulation - Governments are struggling to decarbonise our economies and emissions are still rising. Under pressure from powerful interest groups they tend to adopt a complex mix of piecemeal policies that are insufficient, consume time and resources and impose a regulatory burden on business and industry. Carbon dividends simplifies the task by phasing out most greenhouse gas emissions, facilitating a transition that is as smooth as possible and giving government room to focus on more difficult to solve emissions.
Reduced need for offsets - An efficient price on carbon distributes the task of reducing emissions across the whole economy - the predictably rising price encourages all actors to phase out fossil fuels and transition to zero carbon. No exemptions are necessary as all will benefit from the emerging zero carbon economy and an increasingly safe climate. As fossil fuels decline the need for offsets will also decline and may only be needed as a last resort for the most difficult to abate emissions from non-fossil fuel sources.
Operates without a market - Climate dividends does not need a market to operate and bypasses the costs and profit-taking that takes place in carbon markets and avoids the many concerns being raised about the value and authenticity of offsets. It uses a clean, transparent transfer from fossil fuel subsidies and ‘social costs’ to households. This keeps the focus on reducing emissions and away from the business of trading.
Planetary cooling - There are two steps needed to cool the planet – getting greenhouse gas emissions as close to zero as possible and removing historical emissions from the atmosphere. Efficient carbon pricing is essential for the first step and will free up resources and time to address carbon removal.
Protecting the economy - An efficient carbon price will help protect against the escalating economic costs of climate disruption by slowing the rate of temperature rise and the frequency of extreme weather events. This in turn reduces the danger of market disruptions and crashes and the possible collapse of national economies, governments and civil societies.
Smoother transition – a glide path - A predictably rising carbon price creates the best possible conditions for a smooth transition towards zero carbon. It creates a glide path by which all actors in the economy can decarbonise in planned and deliberate ways by knowing what the price of carbon will be in 5, 10, even 20 years ahead. The alternative is a series of collapses with potentially deadly consequences for many.
Increased innovation - As long as fossil fuels are kept artificially cheap by subsidies (currently over US$7 trillion globally, $60bn in Australia) and other government supports, the transition will be delayed and the research and innovation needed for full decarbonisation will be held back.
Electrification - getting off gas and oil and ‘electrifying everything’ will be greatly assisted by carbon dividends - the predictably rising price on carbon will give the necessary signal to all stakeholders and enable the forward planning necessary to build the necessary infrastructure and transition transport, buildings and industry to electric power. This will reduce the amount of taxpayer subsidies needed for the transition.
Greater integrity - By steadily phasing out fossil fuels, a price on carbon accelerates and disperses energy production widely, enabling billions of people to produce their own energy. This ends the extreme concentration of control, power and profit in the hands of a few global corporations which makes integrity impossible to maintain and has led to the ultimate form of corruption, the endangerment of human survival for the short-term super-profit of a few.
Redirects Financial flows - Finance is still flowing towards the ongoing production of fossil fuels. Money flows towards profitability and as long as policy and price settings favour fossil fuels this will continue, despite the divestment efforts of many. The crystal-clear price signal that comes from a predictably rising carbon price can quickly direct finance towards zero carbon and enable fossil fuel companies and their funders to start reinvesting in renewables and other zero carbon industries of the future.
Bipartisan - Pricing carbon is a rational climate and energy policy that can appeal to all sides of politics. It only became controversial because of vested interests and the climate wars they promulgated. It has the potential to unify now that the climate wars are cooling off and the damage caused by decades of delay is becoming obvious to most.
Shifts the responsibility for our “carbon footprint” - Responsibility for carbon pollution belongs with governments and producers. It is difficult for citizens to reduce our “carbon footprints” in a political economy in which fossil fuels are subsidised, aggressively marketed and embedded in most of our purchases. Climate dividends enables governments, producers, industry, investors and citizens to reduce our footprints together.
Enables us to pay for our emissions - fossil fuel subsidies and the lack of a carbon price means we have no way to pay for our emissions. This makes all consumers complicit in the pollution of our planet. When the true cost of fossil fuels is included, the price we pay for all goods and services will reflect the true cost. The dividend will enable us to afford the most necessary goods and services and choose to save money by buying increasingly cheaper low- or zero-carbon alternatives.
A simple tangible ask. The complexity and negativity of climate politics makes solution-finding confusing and reduces many to demanding ‘climate action’ or other nonspecific asks. A carbon price with dividend is a simple specific solution that many can unite behind.
Engages citizens - climate policy affects us all but is remote and alien to most citizens. A climate dividend enables most citizens to participate in decarbonising the economy by spending on increasingly cheaper zero carbon living while the policy drives up the price of high-carbon living.
It’s already working - Canada introduced a price on carbon pollution with dividend in several provinces and territories in 2019. It has now survived two elections and a supreme court challenge and is set to reach CA$170/ton in 2030. Austria introduced carbon dividends in 2022 at €30/ton with a dividend of €100-200 per household/year. Germany is expected to follow suit soon.
These are the main advantages, there are probably many more.
The only real disadvantage is that it is politically difficult – it affects the short-term financial interests of a small but powerful minority who have yet to see the medium- to long-term benefits of a smooth and steady transition towards zero carbon. Consequently, they are more than likely to use their power and resources to undermine political and public support for carbon pricing. They know it works!
