Let’s Go Faster Down the Road; Why Policy is Important

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remireportTransitioning from fossil fuel energy to clean energy means shifting capital investment. If there is an oil well, it will get pumped. If there is a solar farm, its energy will get used, and that energy will displace fossil fuel usage, reducing the number of wells developed. A focus on reducing fossil fuel consumption, such as lowering your thermostat, helps, however is only part of a bigger solution. But how can we ensure that the market will just naturally go the way we want it to? To move forward, we are suggesting an instrument that is smart for our climate and instills confidence in investors as they make the decisions that will lead us toward a truly brighter future.

A steadily increasing carbon fee and dividend (F&D) will be a vehicle to make all of this go faster and be far better for companies and investors; they will have confidence about the future price and demand for fossil fuels and renewables. Additionally, we can significantly increase the nation’s GDP and employment levels, as well as the health of its citizens. The following graphs are from an in-depth study (PDF) recently produced by Regional Environmental Models, Inc. (REMI) about the long-term national effects of a carbon F&D. They show just how much of these benefits we can expect from the implementation of a $10/ton carbon F&D that increases $10/annually.

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Implementing the carbon tax as a carbon fee and dividend (F&D) in the U.S., with 100% of revenues rebated back to households, has been shown to produce 2.2 million net new jobs (including fossil fuel job losses), increase the GDP, and save 13,000 lives per year according to REMI. The surprising benefit is caused by the shift of revenue from mostly foreign owned capital intensive oil and gas, via the dividend, to households who spend it locally on labor intensive retail and health.

A carbon F&D acts as a clean energy subsidy by improving their competitive position relative to fossil fuels while adding externalized costs back in to fossil fuels. Existing wind and solar subsidies (Investment Tax Credit and Production Tax Credit) could be phased out in favor of a predictably rising carbon F&D.

subsidiesFossil fuel subsidies could be eliminated to benefit people and the planet. A carbon F&D on the other hand is desired by most companies, and can be used to negotiate reduced enforcement of EPA rules where the carbon F&D would produce the desired effects more efficiently.

The figure in the article on the left (click thumbnail on the left) shows how fossil fuel subsidies compare to those associated with other energy sources (as the amounts of subsidies over the length of the subsidy’s term) and their percentage of the federal budget at the time of the subsidies.

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This graph of growth in wind shows how the existing Production Tax Credit for wind leads to rapid drops in production when future subsidies are uncertain (2010 and 2011). Meanwhile, solar subsidies have been stable since 2006, leading to steady and rapid growth.

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