These founding members of the Climate Leadership Council are proposing a new consensus climate solution based on carbon dividends. Their plan is built on four interdependent pillars: a gradually rising carbon tax; with revenues returned to citizens in the form of monthly dividends; border carbon adjustments to level the playing field on trade and maintain the competitiveness of domestic industry; and the rollback of regulations that are no longer necessary upon the enactment of a significant carbon tax.
As any economist would agree, putting a price on carbon is more cost-effective than regulation. It follows that enacting a significant carbon tax justifies the elimination of carbon regulations that are no longer necessary. Simultaneously decreasing regulations while achieving greater emissions reductions is of particular appeal to Republicans and business leaders alike, and contributes to the plan’s pro-growth credentials.
The plan is pro-business because it relies on a market signal to drive investment choices, offering companies greater flexibility and regulatory certainty. It is also pro-worker because it would incentivise job creation and protect workers from unfair trade competition. The latter would be achieved through a system of border carbon adjustments meant to level the playing field, promote competitiveness and end today’s implicit subsidy of dirty producers overseas. Exports to countries without comparable carbon pricing would receive rebates, while imports from such countries would face tariffs on the carbon content of their products.
This upends traditional concerns that nations will freeride off the emissions reductions of their trading partners. Indeed, the combination of carbon dividends and border carbon adjustments offers a whole new strategy to reach a global price on carbon, creating a first-mover advantage for those who lead the way and compelling other nations to follow suit. Those who fail to go along would see their exports taxed based on carbon content, with the proceeds benefiting the citizens of their trading partners, rather than their own.
This consensus carbon dividends solution is well suited to break the longstanding climate stalemate in the US. Yet it also has considerable potential in Europe, China and India, among others. The key question is which country will be first to reap the benefits, and set in motion an international climate domino effect?