Why It Is The Perfect Time for A Carbon Fee and Dividend Policy


The coronavirus crisis provides an opportunity to rethink and rebuild the American economy, while helping the most vulnerable adapt to a ‘new normal.’


Despite our tendency to sing that we’re all in this together, the most vulnerable communities have been disproportionately affected by the coronavirus pandemic and the subsequent economic lockdown. African Americans, for example, make up more than 70% of COVID-19 deaths in Chicago, despite comprising only 30% of the city’s population. Harvard researchers recently linked air pollution to higher coronavirus death rates and communities of color live with 66% more air pollution. In addition to the environmental causes, African Americans are more likely to have chronic health conditions such as heart disease, work in essential fields and have inconsistent access to health care.  Native Americans have also been hit hard by the coronavirus. Loss of casino revenue has left First Nations unable to provide basic services. In addition, the reserves’ remote locations are often isolated from medical facilities. The impact of such inequality has been devastating. For example, the Navajo Nation, which includes parts of Arizona, Utah, and New Mexico, has suffered 1,300 COVID-19 cases and 49 deaths, three times the number of cases of Montana or Wyoming. Furthermore, not everyone can simply jump online for school and work. 46% of the world’s population and 19 million Americans (6 percent of the population) are still offline. Lack of access is more acute in communities of color.      

While countries such as South Korea and Germany have engaged in mass testing, distributed supplies, and worked with local governments, the US response has flailed from denial to promotion of false cures. In the absence of federal leadership, states have been forced to compete for supplies. Unemployment is skyrocketing as many businesses have been forced to shut down and let go of employees. Despite the assistance in unemployment insurance and stimulus checks provided in recent recovery packages, many Americans are still struggling to cope with the economic strain of the coronavirus shutdown. It does not have to be this way. To open up, public health officials say that the United States needs to have universal coronavirus testing. We need to increase testing from one million tests per week to as many as 20 million per day. Although such an initiative could cost up to $300 billion over two years, the cost of our present economic lockdown is as much as $350 billion per month. When we start to ease restrictions, in June, or maybe later, how should we rebuild our economy? 

The climate crisis is still here

Unfortunately, the climate crisis does not disappear just because we have stopped thinking about it. The coronavirus has reminded many of us of the concept of exponential growth, the disease increases at an increasing rate. Climate change operates in a similar way. Its effects compound and worsen over time as greenhouse gas emissions continue to rise. The World Bank warns us that if world temperatures rise by 2 degrees celsius 100 million more people will experience poverty by 2030 and 150 million displacement by 2050. By 2025, the World Health Organization estimates that half of the world’s population will be living in water-stressed areas. Even if countries stick to their current commitments, the IPCC warns that temperatures can be expected to rise 3.2 °C with devastating effects. In the United States, we have already seen many of these effects. The US has experienced more than twice the number of billion-dollar disasters during the 2010s than the 2000s decade. 2019 was the second hottest year on record and climate-related disasters such as record fires in California and record flooding in North Carolina cost the United States economy $45 billion. Those figures represent not only a loss to the economy in its aggregate, but also to people who have lost their homes, farmers who have lost their crops, and children who may have lost their future. 

How we respond when faced with a dreadful, but temporary public health crisis can inform how we respond to the more dreadful and longer term threat of the climate crisis. The US Congress has responded in ways previously considered politically impossible such as providing paid-sick leave to workers, increasing unemployment insurance, and providing a “Lite” version of a universal basic income. Such progress has come with corporate bailouts and other concessions, but we cannot deny that this crisis and these packages have questioned the widely-held belief that governments and economies can’t change. 

A way forward

A coalition of economists, business leaders, and environmentalists propose a way forward: a carbon fee and dividend. The Climate Leadership Council’s plan, also known as the Baker-Shultz plan, is endorsed by almost all economists, several major corporations, fossil fuel and renewable energy companies, as well as environmental NGOs such as Conservation International and the World Resources Institute. Environmentalists may criticize this plan because it involves working with the enemy: fossil fuel companies. Just 100 fossil fuel companies, including some of the plan’s signatories such as ExxonMobil, Total and BP, are responsible for 71% of global greenhouse gas emissions. Despite its internal scientific consensus going back 60 years, ExxonMobil has sought to sow doubt about the scientific consensus on climate change in order to continue selling its product. Fossil fuel companies also outspend environmental advocates 10:1 in climate lobbying.

This plan, however, could constitute an integral first step in addressing the climate crisis and facilitating a sustainable economic recovery from the coronavirus pandemic. The plan proposes a gradually increasing carbon fee, starting at $40/ton and rising 5% each year above inflation. If implemented in 2021, the plan will cut US CO2 emissions in half by 2035. The Council’s plan also includes an Emissions Assurance Mechanism that would temporarily increase the carbon fee, if emissions reductions are not on track with key benchmarks. Since the carbon fee is revenue-neutral, its proceeds would be returned to the American people, benefiting a family of four, for example, with $2000 in carbon payments per year. This sum would grow as the carbon fee increased over time.

Although such benefits would not be a replacement for unemployment insurance and other social safety net measures, the carbon payments would help Americans pay the increased energy costs a decarbonized economy would entail. Similarly, quarterly carbon dividend payments could help stabilize the lives of the more than 78% of workers who live from paycheck to paycheck and the many who have lost their paychecks from the coronavirus lockdown. Furthermore, the plan would allow businesses to make investments in a low-carbon future because of the certainty of an increasing carbon tax. The border-adjustment aspect of the plan would encourage other countries to increase their environmental standards and prevent carbon leakage. While an improved plan would price greenhouse gas emissions on a carbon equivalent basis, to account for methane emissions from natural gas and agriculture, the Baker-Shultz plan constitutes a way out of the coronavirus crisis into a more sustainable and equitable future.        

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