In my first post, I introduced the idea of carbon and fee and dividend. Now I want to look at how it would work in the UK.
Fees steadily rise and are economy-wide, paid by companies that sell fossil fuels in the UK. The tax would steadily rise at a rate set by an independent body such as the Climate Change Committee to give the policy institutional certainty and bankability. This would mean that the price of burning fossil fuels account for their true social and environmental costs.
Fees are structured around border carbon adjustments, to create a level playing field for domestic and international producers so that companies which export carbon intensive products into the UK will be subject to the same level of carbon tax as domestic producers, helping industries like the Welsh steel sector.
Dividends from carbon taxation are returned directly to individual households so they can invest in measures to reduce their own carbon footprint and offset any initial increases in energy prices. People should be able to borrow against their future dividend payments for investments in energy efficiency.
Environmental regulations are rationalised without reducing environmental protection. Eventually at least 10 direct carbon taxes would be rationalised into a single unified price paid for emitting carbon dioxide and other greenhouse gases in the UK. For example, we would no longer need the Climate Change Levy, but we should continue with energy efficiency standards and energy labelling.
What would the impact be?
Estimates suggest that we could prevent 230,000 premature deaths over 20 years from improved air quality alone, on top of climate change reversal and we could also create 2.8 million extra jobs.
The REMI Study in the US examined the effect of a progressive fee and dividend (F&D) carbon tax, starting at $10 per ton of CO2 on the national economy as well as the economies of nine regions of the US. The study then compared these results to the baseline case where there is no price on carbon.
Study Highlights: