Newswise — Researchers at the Political Economy Research Institute (PERI) at the University of Massachusetts Amherst have released a new report, Cap and Dividend: A State-by-State Analysis, jointly published with the Economics for Equity and the Environment Network. The report injects timely and rigorous analysis into the debate over climate policies, which will be at the top of the U.S. Senate's agenda when it returns from summer recess.
The report, with details about the impact in every state, is available at www.peri.umass.edu and www.umass.edu/newsoffice.
"There is great interest in Congress and among the public in how climate and energy policy will affect families in different states," said economics professor James K. Boyce, co-author of the report and director of PERI's environment program. "We estimate the impact of higher fuel prices that will result from a cap on carbon emissions on family budgets. We then ask what happens if carbon permits are auctioned, rather than given away to corporations, and most of the money is returned to the American people as dividends. We find that in every state, at least six in 10 households come out ahead, in pocketbook terms, without even counting the benefits of curbing global warming."
Putting a cap on carbon emissions will increase prices of oil, coal, natural gas and everything produced and distributed using them. By calculating the carbon footprint of households in different income brackets in each state, the report shows how the resulting costs to consumers will be distributed across the population.
The money that consumers pay in higher prices will not leave the nation's economy. In this respect, carbon permits are very different from OPEC-engineered oil price increases that send American dollars abroad, Boyce said. Instead this money will go to the owners of the carbon permits created under the cap. A cap and dividend policy will put this ownership in the hands of the American people, he said. It will do so by auctioning 100 percent of the carbon permits, as proposed by President Obama in his 2009 budget. Businesses will pass through the carbon price (the cost of permits) to consumers, each household paying in proportion to its carbon footprint. The government will then return most or all of the auction revenue to the public as equal dividends, completing the recycling of dollars within the economy.
With a permit price of $25 per ton of carbon dioxide, Boyce and his co-author Matthew Riddle report that the annual cost to the median family would range from $239 per person in Oregon to $349 in Indiana. Under cap and dividend, each person would receive dividend payments of $386 per year, so the net benefit to the median family would range from $37 per person in Indiana to $147 in Oregon.
"A cap and dividend policy has three big things going for it," says Boyce. "First, it affirms the ethical principle that our natural wealth " in this case, the atmosphere's ability to absorb and recycle our carbon emissions " belongs in common and equal measure to all. Second, it sends a clear market price signal that burning fossil fuels has a social cost, giving businesses and consumers the incentive to invest in energy efficiency and clean energy. Finally, by protecting the real incomes of American families, and doing this in a very transparent and visible way, it can win durable public support over the long haul for policies that wean our nation's economy from dependence on fossil fuels."
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