Towards a worldwide uniform Carbon
Fee & Dividend system
For a rapid transition of the world economy towards zero CO2
emissions.
This short paper is meant to describe a proposal for a
worldwide uniform Carbon Fee & Dividend system to transit the world economy
towards zero CO2 emissions. It is based on the writing of Dr. James Hansen, but
has been extended in some detail.
What is a Carbon Fee
& Dividend system (CF&D)
A Carbon Fee & Dividend system is a system designed to charge
steadily increasing fees on the carbon content of fossil fuels, oil, natural
gas and coal, and return the proceeds back to the public. It is a mechanism
designed to increasingly transform the world economy towards a more sustainable
one using low CO2 emission forms of energy and therefore an important tool to
avoid catastrophic climate change. The CF&D system does not apply to all
greenhouse gas emissions. This first version could affect between 57-80% of all
greenhouse gases (GHG) depending on its implementation.
Why do we need a
CF&D
The atmosphere is increasingly being polluted by greenhouse
gases warming up our planet and changing the climate. On all accounts of the
IPCC, IEA, World Bank, IMF, the world is on track to warm by 3-8,5 degrees C
this century if nothing is done about it. The effects will be nothing short of
catastrophic for humanity and the living species it shares our Planet with. The
UN has tried in several ways to put a break on emissions. The largest attempt
was the 1997 Kyoto Protocol that introduced a system of cap and trade. It
largely failed due to political unwillingness and complexity of the system. Annual emissions grew from the base line of
1990 to 2013 by about 50% and are still increasing. The policy goal held up by
all countries is that we should not exceed 2 degrees C warming in order to not
invite large scale catastrophe to humanity. Major climate scientists like Dr.
James Hansen have warned that a 2 degree limit is already endangering
humanity’s future and we should go back to 350 ppm CO2 in the atmosphere to be
on the safe side. The CF&D system is a major instrument to reach the
targets set to keep our climate and our planet safe for human habitation.
What does a CF&D
do?
A CF&D introduces a fee on fossil fuels at the point of
extraction or if that is not done at the point of entry into a country. By
doing so, it increases the price of these fuels, increases that will be added
to the price of the products made with the energy in the fossil fuels. This
makes these products relatively more expensive compared to products made with
energy that does not produce CO2 like hydro, wind, solar, thermal, biomass and
nuclear or simply by increased energy efficiency. By increasing step by step
the fee, a transition will take place towards products and services that hold a
low fossil fuel content and the consumer will chose more and more the clean
products and services, based on price. While prices of some products and
services increase, others will remain stable. The fees collected shall be
distributed equally over the adult population worldwide (organized per
country). Consumers will be compensated for the higher prices and at the same
time will save money if they use clean products and services. People who
consume a lot and a lot of dirty products and services will pay more towards
the system than people who don’t. Poor people will pay less because they have
less to spend and at the same time they will receive an equal share of the fees,
affecting them positively.
Why does it need to
be uniform and worldwide?
Climate change is affecting the whole world and will do so
increasingly. There are several reasons to introduce a worldwide and uniform
system. Firstly, while China is the largest polluter, it is mainly because the
rich countries (US, Canada, Europe, Japan, Australia, Singapore and some Middle
Eastern Countries) basically have outsourced the production of industrially
produced goods to China and other Asian countries. The pollution created in
China, is ‘’on behalf of’’ the consumers. Meanwhile large oil producers like
Saudi Arabia or Nigeria have a relatively small direct footprint of CO2
emissions, but they are the source of the fossil fuels that will be responsible
for new greenhouse gas emissions. Secondly, historically greenhouse gases have
been pumped into the atmosphere by the earlier industrialized countries and
there is where most of the richer end consumers live. A global uniform CF&D
system is correcting that up to a point. Thirdly, a lot of studies have shown
that the poor, who are the least to blame for CO2 emissions, are the ones who
will suffer more and earlier the consequences. A global, uniform CF&D
system rectifies that problem to a degree and with carbon fees high enough,
would also directly alleviate extreme poverty worldwide as the amounts coming
from the dividend is spread worldwide equally over all adults. It might
invisibly small to the rich, a nice bonus for the middle classes, but it will
be important income to the poor. If the system is implemented by a the large economies,
like the US, the EU and Japan and some will not abide by it, fees on fossil
fuels can also be established at port of entry (mainly harbors) as well as a
tax on products produced in non-complying countries. This way compliance can be
enforced around the world.
Economic effects &
effects on climate change
The economic effects will be visible very fast without being
a drain on the economy as the pace of the fee increase will be decided on
established indicators of economics and development of emissions. But the first
big effect will be on investment and divestment. Just the introduction of the
CF&D system will increase investments in renewable and low emission energy
production and it will produce a divestment away from the fossil fuel industry.
The same goes for clean transport (electric cars powered by renewable
electricity will be given more and more a head start, while smaller fuel
efficient cars will more and more win out over fuel guzzlers, etc.) Airplane
tickets will increase sharply in price, diminishing flying around the world in
favor of high speed railways etc.
The CF&D system could be extended to fees for
deforestation and cement production, two major GHG emitters. It will also allow
for negative fees (so money back) for economic activity that bury carbon and
therefore capture greenhouse gases. Examples could be large reforestation
projects, biochar projects, waste-management and carbon capture and storage installations.
The effects on emissions will be fast and the steeper the
fee, the steeper the emission cuts. Parameters maybe also be based on the
amount of CO2 in the atmosphere in parts per million or the increase thereof
could be coupled with the fee level.
Implementation
Fossil fuels are produced by a small number of companies,
producing from a relatively small number of extraction points and fossil fuels
get shipped across borders at a relatively small number of points of entry.
Most countries have VAT systems working, allowing them to implement a fee and payment
system relatively easy into existing systems. Fees will be collected per
country and distributed over the adult population (from 18 years of age) based
one worldwide figure, e.g. 15 US dollar per month per person (which is
realistic at a 10 USD fee per barrel of oil equivalent). Children are not
counted to avoid a baby boom under the very poor just to collect the fee. Some
countries will collect much more fees than others relative to their adult
population. These excess fees will be shipped to an international CF&D
bank, which is responsible for matching the proceeds of different countries.
The CF&D system will also allow for negative fees (so
money back) for economic activity that bury carbon and therefore capture
greenhouse gases. Examples could be large reforestation projects, biochar
projects and carbon capture and storage installations. Research into
agricultural practices that are storing carbon (e.g. topsoil enhancing forms of
agriculture) needs to be carried out. A scientific and technical committee will
need to produce guidelines for all the fees, based on scientific research. With
fossil fuels these factors are well known, with negative fee projects work
needs to be done. Also fossil fuels used to produce non greenhouse gas emitting
products (like plastics or paints) need to be exempt from fees.
The dividend distribution system needs more work as all
adults need to have access to a bank account or other money system (mobile
phone, internet profile etc.) to receive the fees. More than 2 billion people
do not have access to a bank account or payment system, which is in itself a
factor that is keeping the poor poor. The World Bank launched the Global
Financial Inclusion initiative, which it calls Global Findex. Inclusion of all
adults could be organized led by the World Bank. The system must be all
inclusive, but individuals would be able to opt out.
Some rough
calculations
The following figures are rough estimates based on some
quick online research and are meant to understand as ball park figures.
Total emissions per annum 33,3 Gigatons of CO2 in 2011, up
from 22 GT in 1990.
(for more detail per country see http://edgar.jrc.ec.europa.eu/overview.php?v=CO2ts1990-2011
or http://en.wikipedia.org/wiki/List_of_countries_by_carbon_dioxide_emissions)
Amount of CO2 in the atmosphere in parts per million 400 in
2014, up from about 285 ppm at the start of the industrial revolution (1830)
Total maximum emissions for the planetary surface
temperature to keep below 2 degrees C
Estimates are around 500 Gt, which would be less then
fifteen years before we need to be carbon neutral, given that emissions are at
35 Gt per annum in 2014 and rising. A good blog about this subject is:
A good course for details is the Global Carbon Budget http://www.globalcarbonproject.org/carbonbudget/13/hl-full.htm#summary
Total world energy production 2012: 13100 MTOE (Million ton
of oil equivalent)
Total energy production from fossil fuels: 81.6% or 10700
MTOE, or around 75 billion barrels of oil equivalent.
Source: IEA Key World Energy Statistics
Total adult population: 4 billion
Total proceeds of carbon fees per annum based on 10, 20, 50
and 100 usd per barrel of oil equivalent of fossil fuel based on 2012
production.
At 10 USD = 750 billion USD, 20 USD = 1,5 trillion USD, 50
USD = 3,75 trillion USD, 100 USD = 7,5 trillion USD
Dividend per person based on fees of 10, 20, 50 and 100 usd
per barrel of oil equivalent of fossil fuel based on 2012 production.
At 10 USD = 187,50 USD per person per year, at 20 USD = 375
USD pppy USD, at 50 USD = around 900 USD pppy and at 100 USD = around 1900 USD
per person per year.
There figures do not include activities which will receive
carbon fees because they bury carbon, or proceeds from deforestation and cement
production.
Some more info:
James Hansen’s original Carbon Fee & Dividend proposal
(USA only)
Global Emissions by Green House Gas
At the global scale, the key greenhouse gases (GHG) emitted
by human activities are:
1.
Carbon dioxide (CO2) - Fossil fuel use is the
primary source of CO2, counting for roughly 57% of all GHG. The way in which
people use land is also an important source of CO2, especially when it involves
deforestation, counting for about 17% of all GHG. Land can also remove CO2 from
the atmosphere through reforestation, improvement of soils, and other
activities.
2.
Methane (CH4) - Agricultural activities, waste
management, and energy use all contribute to CH4emissions. 14% of total.
3.
Nitrous oxide (N2O) - Agricultural activities,
such as fertilizer use, are the primary source of N2O emissions (8%).
4.
Fluorinated gases (F-gases) - Industrial
processes, refrigeration, and the use of a variety of consumer products
contribute to emissions of F-gases, which include hydrofluorocarbons (HFCs),
perfluorocarbons (PFCs), and sulfur hexafluoride (SF6) (1%).
Source United States Environmental Protection Agency (EPA)
Worldbank: Measuring financial inclusion : the Global Findex
Database
