The TH Interview: Peter Barnes, Senior Fellow at the Tomales Bay Institute
by Jeremy Elton Jacquot, Los Angeles on 07.13.08
Peter Barnes is no dyed-in-the-wool environmentalist. A successful entrepreneur, writer and now senior fellow at the Point Reyes Station, Calif.-based Tomales Bay Institute, Peter has co-founded and led several companies, including Working Assets (with former TH interviewee Michael Kieschnick).
He is a prolific author -- some of his recent books include Capitalism 3.0 (you can download a free copy here) and Climate Solutions: A Citizen's Guide -- and former journalist who has written for The New York Times, Newsweek, The New Republic and others. He is also a frequent contributor to Grist, where he has written extensively about the benefits of a cap and dividend approach to climate mitigation.
I recently had the opportunity to ask him a few questions about how a cap and dividend system might work in practice and why it is a preferable alternative to cap and trade or a carbon tax.
TreeHugger: Can you describe how a cap and dividend system would work?
Peter Barnes: Let’s start with the basic idea. What we need to do, to solve the climate crisis, is to raise the price of carbon emitting and make clean alternatives economically attractive. The problem is, raising the price of carbon is like putting a sales tax on energy. It hits low- and middle-income families hard. And with gas approaching $5 a gallon, people just aren’t willing or able to pay more. So we need a system that raises the price of carbon with one hand, and gives that money back to everyone in an equitable and trustworthy way with the other. That’s what cap and dividend does.
Here's how it works. We place a descending economy-wide cap on carbon, auction 100% of carbon permits and return 100% of auction revenue to the public in monthly dividends.
Here’s a little more detail:
1. Cap carbon suppliers, not emitters. This type of cap is called a supply cap or upstream cap and is important because carbon differs from all other pollutants. It gushes not just from a few pipes, but from hundreds of millions. Capping carbon emitters is therefore extremely difficult. To the extent it can be done, it will be an administrative nightmare for businesses, consumers and government. And it will never catch all of the carbon that flows into the atmosphere.
By contrast, capping carbon as it enters the economy is relatively simple. The cap can be administered by requiring first sellers of oil, coal and natural gas to buy permits equal to the carbon content of their fuels — there are only a few hundred of these companies and they're already regulated closely. Once a year these companies would ‘true up’ and pay a stiff penalty if they don’t own enough permits. No other businesses would need permits, and no smokestacks would need to be monitored. The key is, if carbon doesn’t come in, it can’t go out.
2. Sell all carbon permits at auction, as Obama has called for. Don’t give away any permits.
3. Return 100% of the proceeds from permit auctions to all Americans in the form of monthly dividends. These dividends will protect families from the rising fuel prices that a carbon cap will trigger. To keep administrative costs low, they’d be wired electronically (like Social Security) to people’s bank accounts or debit cards.
TH: What are its most attractive features?
PB: It's simple, transformative, and fair to all. And it protects household purchasing power as energy prices rise. It’s win-win for the earth — and American families.
TH: What's wrong with the cap and trade approach advocated by both presidential candidates? Is one candidate's position better than the other?
PB: Both candidates’ plans are evolving at the moment. Obama has come out firmly for a carbon cap and 100% auction and seems to be moving towards a dividend. He has said that “a huge chunk” of auction revenue needs to go back to consumers.
McCain’s stance has wavered in the past few months. He has said he supports a cap, but has also said the cap wouldn't be mandatory — so that’s not really a cap. Also, McCain appears willing to give away free permits to historic polluters.
TH: What should we take away from the European Union's recent experience with cap and trade?
PB: First, that we should cap carbon suppliers, not emitters. Second, that we should auction all permits rather than give them free to historic polluters. Third, that we should protect consumers from higher energy prices by returning auction revenue to them. And fourth, that we should not allow cheap international 'offsets' to substitute for real emission reductions.
TH: Many economists support a carbon tax on a principle of efficiency. Why do you think a cap and dividend system would work better?
PB: In theory, there's not much difference between raising carbon prices through a tax or through a cap — a cap pushes down supply and a tax reduces demand. I prefer a supply cap because it sets a physical limit on emissions and is more politically viable. Also, a cap allows you to meet a carbon reduction goal on time. With a tax you're relying on politicians to keep raising the tax rate until we drive down emissions sufficiently. I wouldn’t bet the planet on that a high a level of political heroism.
TH: What are the greatest institutional challenges to its implementation?
PB: The political power of polluting industries, and the absence of Presidential leadership. Fortunately, the latter will soon change.
TH: How much support is there among policymakers and businesses for cap and dividend?
PB: With gas approaching $5 a gallon, and the middle class on the economic edge, it has become clear to policymakers that any policy that raises carbon prices must simultaneously protect household incomes. Cap and dividend is the best way to do that, and it’s being increasingly considered and discussed now.
TH: What do you think is the most effective way to get the message out to regular people? Are you hopeful a system like cap and dividend could see the light of day within the next few years?
PB: I am quite hopeful. We’ve heard from the public, in poll after poll, two clear messages: they want action on climate and they’re worried about the impact on their wallets. Cap and dividend deals with both of these realities in a simple and fair way.
Recently, influential figures like NASA scientist James Hansen, former Labor Secretary Robert Reich, and authors Bill McKibben and George Lakoff, have endorsed 100% dividends. Conservatives are also warming to the idea, as it involves no taxes or government spending. I wouldn’t be surprised if Obama and even McCain support it before the end of the year.
People who are interested in cap and dividend can visit www.capanddividend.org. And we'll soon have a popular video
explaining it.
More on cap and trade alternatives
::Climate Expert James Hansen Supports Cap-and-Dividend System
::What Would a Carbon Tax Look Like?
Sounds pretty good, capping or taxing the first sellers rather than the emitters, far less paperwork......Must emphasize the dividend/rebate aspect though, or people won't get past the immediate increased cost aspect. Hansen explains the 100% rebate aspect well, and I prefer his variant over Barnes', but either seems better than cap and trade...now if only our next Congress will adopt something like fossil carbon cap and dividend or fossil carbon tax and 100% rebate...DB
I'm glad to see Cap and Dividend gaining attention. It is the best way to solve the climate crisis.
The question is not how much carbon is pulled up out of the ground, the question is how much and in what form it enters the atmosphere. If we take oil and turn it into carbon fiber composites then almost none entered the atmosphere. Methane is a 62x more powerful greenhouse gas than CO2. 60% of the methane released worldwide comes from livestock & human waste. Under the cap programs the non-emitting carbon fiber composite would be taxed but the livestock & human waste would not when in fact it is much worse.
Most coal goes to electricity. Most grids are at capacity during peak hours. Raising the price will not reduce consumption when you give the price increase right back to the people buying it. These guys fail economics. Take the budget for this program and start building solar plants in the southwest to address the environment AND peak power issues.
Right now, most of the lifetime cost of a coal plant is coal. But under most income tax systems the price of that coal is 100% deductable! The cost of waste disposal is also 100% deductable. This same game plays out over and over again for other wasteful industries.
Most of the lifetime cost of solar, wind or geothermal plants is capital cost. It's a capitalized expense and not directly deductable. So the government punishes them for not being wasteful.
That means you have the government & IRS to thank for every coal plant in the US, UK, Canada, EU, etc.
The way to fix this is to stop taxing production and start taxing consumption which also stops the game of I made it on the other side of the imaginary line (national border) and so you can't tax it.