California Might Give Pollution Permit Cash Back to the People

California is pushing ahead with a new system to regulate carbon emissions. Come 2012, utilities, refineries, and other industrial polluters won't...

California is pushing ahead with a new system to regulate carbon emissions. Come 2012, utilities, refineries, and other industrial polluters won't be able to pollute for free. They'll have to have permits. California is planning to auction those permits off, and that will bring in somewhere between $2 billion and $22 billion for the state between 2012 and 2020.What to do with all that money? Well, the panel designing the program is recommending that the state give it back to the people:
The panel recommended that 75% of proceeds from such sales be returned to state residents, in one form or another. If a dividend approach were adopted, that would mean a family of four would receive an estimated $388 in 2012, rising to $1,036 by 2020, putting about $7,000 in that family's budget during the eight-year life of the program.The remaining 25% of revenue, the panel recommended, would be used to help industry cut emissions, especially those firms with particularly difficult transitions to a lower-carbon world.
This is essentially what's known as a "cap-and-dividend" program and it's a great idea. Here's why: When you make companies buy permits to pollute, that adds to their costs. The expectation is that they just pass these costs on to consumers, making energy more expensive for everyone. But, as Ben Jervey explained last March, if you have a "cap-and-dividend" program:
Higher energy costs... would be offset by monthly or quarterly direct deposits into the bank accounts of anyone with a social security number. Because everyone gets an equal share, it becomes a progressive system that best benefits the lower-income families who'd potentially suffer the most from rising energy prices. The paybacks would more than make up the difference for a poor family with smaller energy demands, but it wouldn't cover the increased costs for the millionaire with two 4,000 square foot houses and a private jet. And that's just fine. Overall, most folks would make money from a pure cap-and-dividend program. A UMASS study (PDF) found that with Barnes' plan, 60 percent of American families would come out ahead. What's more, it'd also reward conservation and efficiency. The less energy you use, the more cash you net from your cut.
There's also a certain fairness to cap-and-dividend. After all, it is the public's air that is being sold with these permits. The public should get the money.It's great news that California is considering this. Especially if the program pays people back with actual checks in the mail rather than tax cuts. Getting a dedicated "carbon tax dividend check" every once in a while would remind people of how they benefit from putting a price on pollution-and make the policy easy for politicians to champion. A tax cut would be much easier to ignore and/or forget about.