THE CASE FOR AN AUSTRALIAN CARBON DIVIDEND
by
Shakti Srikanth
The moral imperative to address climate change has expanded to encompass social and economic costs. Recently, 200 nations gathered in Katowice, Poland for the latest round of climate change negotiations. COP24 coincided with the release of the Intergovernmental Panel on Climate Change’s Special Report, which warned of significant risks to the planet if temperatures rise 1.5°C above pre-industrial levels.
Outgoing President of the COP, Frank Bainimarama, commented, “We must also be much more ambitious in raising the many billions of dollars needed to finance climate action and adaptation for the most vulnerable.” Bainimarama highlighted what for many is the latest challenge in the fight against climate change – growing inequality. This inequality arises out of the very real concern that a transition to a low carbon economy will drive up the cost of energy and transport, leaving low-income earners worse-off. Therefore, strategies that address climate change must be affordable, reliable and socially beneficial.
One such method is the carbon dividend; a term coined by the Climate Leadership Council (CLC), a Washington-based think-tank. A carbon dividend has two basic features:
- A ‘price’ on carbon from greenhouse gas emissions that contribute to climate change
- A dividend check that distributes collected revenue from the price equally amongst citizens
In 2017, the US Citizens’ Climate Lobby proposed a price of US$15 per ton of CO2-equivalent emissions. Yearly price increases of at least US$10 per year were estimated to reduce US CO2-equivalent emissions to within 10% of 1990 levels. An American household could in effect receive up to US$4800 per year in carbon dividends.
UNSW Grand Challenges on Inequality, co-led by Professors Rosalind Dixon and Richard Holden, have re-worked this model to an Australian context: which they believe is a “completely reliable, comprehensive solution.” UNSW Grand Challenges is a think-tank that facilitates critical discussions on public discourse and policy; amongst them are inequality, climate change, refugees and migration.
When asked about the role universities play in leading the fight against climate change, Professor Dixon emphasised the importance of harnessing thought-leadership and expertise. She said:
“[Thought-leadership] means contributing to public debate and setting an agenda for change; expertise-based asks ‘what expertise do we have in the university’ and ‘how can we harness the power of advocacy groups’ such as the Citizens’ Climate Lobby Australia who have been influential in bringing the carbon dividend to our attention. Firstly, UNSW is one of the leading research facilities in Australia for oceanography and climate science, secondly, UNSW has academics who can come-up with policy solutions that can be fed into the political process and debate. In an era where political factions are increasingly questioning science and evidence, universities must further attempt to defend the facts.”
Grand Challenges’Australian Carbon Dividend Plan (ACDP) is a carbon tax, or a ‘Pigouvian tax’ – one that internalises a ‘negative externality’. The Pigouvian tax is essentially a tax on behaviour, which increases the cost of the behaviour to deter consumers from acting in a particular way (i.e. polluting). The harmful effects of the action are referred to as negative externalities. If governments set the level of the tax to the level of the social cost imposed by the externality, a Pigouvian tax says that the externality can be offset. In other words, the market will equilibrate the economic benefits (e.g. consumption, growth) and environmental and social costs (e.g. climate change).
As leading climate economist, and Professor of University of Chicago, Michael Greenstone opined in a statement to the United States House Committee on Science, Space and Technology, “by calculating the costs of climate change, the social cost of carbon allows for the calculation of the monetary benefits of regulations that reduce greenhouse gases.”
Under the ACDP, emitters of CO2 will be taxed A$50 per ton of CO2 released. The A$50 would then be remitted back to Australians via direct deposit, dividend checks, or even contributions to retirement-savings accounts. The average Australian family would receive approximately A$2,600 per annum in tax-free payments.
The ACDP further addresses Australian exports and imports. For countries without analogous schemes, Grand Challenges have proposed that exports receive tax rebates whilst imports are charged fees based on the carbon content of those products. This respectively encourages and discourages emitters from relocating to jurisdictions more permissive of greenhouse gas emissions however, a border adjustment feature does carry legal and practical challenges, including the assumption that it would provide domestic businesses with a competitive advantage. Even so, Grand Challenges conclude that with the correct due diligence and monitoring these concerns can be managed.
Of course, as in any climate policy, there must be great incentive for large businesses to reduce their carbon emissions. The Citizens’ Climate Lobby show that energy inefficient businesses will become less competitive and risk losing market share – a direct result of the proportionality between the carbon fee and the dividend. In Australia, the ACDP recommends rolling-back various regulations on carbon dioxide emissions that may have prevented investment in renewable technologies. Interestingly, the ACDP does not encourage the use of government subsidies. If subsidies were phased out, an A$500 million budgetary benefit could be achieved in year 1, growing to A$2.5 billion annually by year 5.
Carbon taxes aren’t a novel idea in Australia; in 2011 the Gillard Government introduced a carbon tax under the Clean Energy Act. A A$23 per ton tax was instituted on entities who emitted more than 25,000 MT of CO2 per year. Significantly, both the agricultural and transport industries were excluded from this tax imposition, which left 20% of transport emissions alone untaxed.
Compensation was only awarded to those earning more than A$18,200; the government did not establish schemes for parties such as pensioners and adult dependents. In this respect, a significant difference between the Carbon Tax and ACDP is that the latter is not regressive – everyone receives the same dividend. The failure of the carbon tax was of course in part a campaign of fear mongering and dirty politics. Understandably, the word ‘tax’ carries negative connotations; however, while a tax has the primary purpose of raising revenue, a fee is a payment in exchange for a service or privilege.
The benefits of a carbon dividend are numerous, and not solely restricted to the environment. The Citizens’ Climate Lobby in America have noted that national employment would increase by 2.1 million jobs after 10 years, and 2.8 million after 20 years with a carbon dividend. The study conducted by the Regional Economic Models Inc. (REMI) also found that a carbon dividend increased household income. Rather than saving, consumers are likely to spend bonus income on goods and services, stimulating the economy. This has positive spillover effects into the labour market, as businesses increase labour hire.
For the ACDP, Grand Challenges predict a similar effect; household spending is likely to increase, as the average household would be an estimated A$585 per annum better off. Most notably, the lowest income quintile are estimated to be A$1,305 better off as a result of their tendency to save.
Jurisdictions in North America have taken a similar dividend approach on ‘common-property’ resources. Since 1982, the Alaskan Permanent Fund has sent annual checks drawn from earnings on oil royalties to residents. As of 2015, the fund’s value was nearly $US52 billion. A recent survey by the Economic Security Project, found that 81% of residents agreed state-run cash transfer programs improved their quality of life.
If the CLC’s carbon dividend does manage to pass US Congress, climate change advocates are optimistic about public sentiment. A 2017 study led by the Yale Program on Climate Change Communication found that American households were on average, willing to pay $177 a year on household energy bills – annual tax revenue of about $22.3 billion (before revenue from a carbon tax) – with 57% agreeing that revenue should assist vulnerable low-income communities.
Professor Dixon agrees that the ACDP can change the narratives around welfare and handouts, he stated, “The carbon dividend is not compensation in a pure form […] all citizens are equal owners and custodians of Australian resources. If you end up A$600 ahead because of this plan, it is not because it is a handout, it is because you’re a stakeholder in society.”
Past efforts to address climate change have been less than fruitful. In contrast, a carbon dividend for Australia is an inclusive policy-approach. It has two key advantages: firstly, it compensates ordinary Australians for the increased costs associated with paying tax; secondly, it has the capacity to contribute to a broader cultural shift in current Australian political thinking.
With the upcoming election, Grand Challenges are on a crusade to garner support for the ACDP. For Professor Dixon, the interval between now and the election is crucial, he argues:
“We’re at stage 4 of this project, which is trying to convince people who make decisions to pay attention. In some ways that’s the hardest, because it is the one that is least within our control. We are writing about it, talking about it, having meetings with people about it, but we’re also trying to get a broader coalition of people on board.”
For more information visit: https://www.auscarbondividend.com
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** This article was written in collaboration with UNSW Grand Challenges and Professor Rosalind Dixon. I would like to thank Professor Dixon for her comments and insights.
Bio: Shakti is a sixth year Arts/Law student; some would say she’s over-stayed her time at UNSW. Outside of university, she is like any other 22-year old – binge watching Netflix, feasting with family and friends, and trash-talking Married at First Sight.
References –
Allen, Myles, Mustafa Babiker, and Yang Chen et al. 2019. “The Special Report On Global Warming Of 1.5 °C (SR15)”. Incheon, South Korea: Intergovernmental Panel on Climate Change (IPCC). https://www.ipcc.ch/sr15/
Milton Friedman Professor in Economics Michal Greenstone. “Statement of Michael Greenstone presented to United States House Committee on Science, Space and Technology, Subcommittee on Environment, Subcommittee on Oversight, hearing on “At What Cost? Examining the Social Cost of Carbon”. Statement, Washington, DC, 28 February, 2017. https://epic.uchicago.edu/sites/default/files/Greenstone%20SCC%20testimony%20022717.pdf?fbclid=IwAR3zWg0RPiRIk06bHbiy4_4wjpgO9GD-pLiwPU04C4ZnLVt7mLcc5UBJdcw
President of Fiji Frank Bainimarama. “We must be much more ambitious” – COP23 President at the Talanoa Talks in London”. Speech. London, England. 30 November 2018. https://cop23.com.fj/must-much-ambitious-cop23-president-talanoa-talks-london/
Richard Holden and Rosalind Dixon. 2019. “A Climate Dividend for Australians”. Sydney, Australia: UNSW Grand Challenges. http://www.grandchallenges.unsw.edu.au/climatedividend
“The Basics Of Carbon Fee And Dividend”. Citizens’ Climate Lobby. Accessed February 26. https://citizensclimatelobby.org/basics-carbon-fee-dividend/
The Yale Program on Climate Change Communication. 2017. “Americans Willing To Pay A Carbon Tax”. 12 October 2017. http://climatecommunication.yale.edu/publications/americans-willing-pay-carbon-tax/
Weller, Chris. 2017. “The largest cash transfer program in the US just got a huge vote of confidence”. Business Insider, 29 June 2017. https://www.businessinsider.com.au/alaska-cash-transfer-program-survey-2017-6?r=US&IR=T