A Carbon Dividend

There can be no doubting the urgency required to address climate change and there’s no doubting Ireland’s sluggish response.  Here is an opportunity for progressives to take the lead on this issue, rather than reacting to Government proposals (or lack of).  A Carbon Dividend could be a significant feature.

Carbon tax is levied on the carbon content of fuels which produces CO₂, a greenhouse gas.  This is intended to incentivise consumers (households, businesses) to reduce their consumption and/or switch to more climate-friendly energy products.

A problem with the carbon tax is that it drives up prices on all products and services with an energy content – from production to transport.  And it is highly regressive – impacting disproportionately on low-average income households.  We can see this from a highly informative paper  from Kelly de Bruin and Aykut Mert Yakut at the ESRI.

The lowest 10 percent income group spend 3.6 percent of their budget on electricity.  This falls to 1.3 percent for the highest 10 percent income group – even though this group consumes more electricity.  All energy-related products (except diesel) exhibit this same trend. A carbon tax would penalise lower-income groups and has the potential to increase fuel poverty.  This can hardly be called a Just Transition.

Many have argued that climate change is a systemic crisis.  People shouldn’t have to pay for the failure of Governments (and the EU) to drive a Green New Deal which would result in an epochal-shift in energy production. Nor should they have to pay for the 500 companies responsible for over 70 percent of global emissions.   A carbon tax passes on the cost of political failure and corporate negligence on to households. 

There is much in this argument.  However, to fully move to renewable energy-production will take time. A carbon-neutral economy is decades away.  There is a need to reduce consumption now, urgently, and incentivise better environmental behaviour through market signals.  Taxation can do that.

The ESRI – using a new model to assess the impact of taxation on consumption – came up with some startling findings.  To meet our EU targets, we may need to increase carbon taxes by 10 to 15-fold – a massive increase that will impact on economic activity and household income.  We are faced with a massive environmental, economic and social challenge. 

So how can we square this circle – the need to act urgently while protecting people’s living standards; all in the context of political acceptability?  We should consider a carbon dividend. 

Put simply, all the revenue raised by a carbon tax would be returned to people. It would not be a revenue-raising tax; it would be revenue neutral.   British Columbia has one example of this.  In Ireland, we can get a sense of the amounts involved from a Parliamentary Question put by Michael McGrath, TD.

Currently, the carbon tax rate is €20 per tonne of CO₂.  The table shows the revenue yield from increasing the tax to €100 per tonne over five years.  By the 5^th year the tax would raise over €2.1 billion.  The dividend per capita – every adult and child – would rise to €416; for a family of four it would be over €1,600.

The idea would be that low/average incomes would be compensated while high income groups (the highest energy consumers) would be net losers.  The intention would be to incentivise reduced consumption and switching to less carbon-content activity.

There are problems with this:  a high-income household may be able to afford an electric car or retrofit their home in order to reduce their carbon tax liability – something low and average income households couldn’t.  There would also be a higher impact on rural dwellers who are reliant on private transport.  And high-energy consumption export sectors (e.g. pharmaceuticals) may be negatively impacted.   

A carbon tax is not a magic bullet.  Other initiatives – including those to remove any inequities from the carbon tax – will need to be implemented.

• The Government should organise a sector-wide consortium of public enterprises, private companies, universities and suppliers to fast-forward a shift to marine renewables (wave, tidal, ocean, off-shore wind).  This can’t be left to market forces – this is as important as the electrification of Ireland in the last century. 
• New buildings to be covered by stringent regulations regarding insulation with mandatory retrofitting to the highest possible BER rating on the transfer of any residential or commercial building.
• The state to act as a wholesaler for hybrid and electric cars, buying in bulk and selling them on to households and businesses with repayments linked to income.  This would include rolling out the needed infrastructure (recharging points) with rural households being targeted first.  We should look to Norway’s example where over 30 percent of new car registrations are now hybrid or electric.

These and other initiatives (a major public transport programme in urban and town areas, for instance) are needed to supplement a carbon tax – so that people have the option of a lower carbon consumption alternative.

Progressives should not allow themselves to be side-lined in this debate, confined to reacting to Government initiatives or fall into the ‘something-must-be-done’ syndrome.  We need to be out front on this issue and face down the inevitable opposition coming from closet climate-change deniers. 

On this issue – the future of the planet – the stakes couldn’t be higher.

Comments

[John Cunningham]

Could be waiting for marine-based energy. May have to bite the bullet on storage and have 1 or 2 massive pumped hydro systems in locations that result in the least environmental damage.

[Seamus Diskin]

One of the biggest effects of climate change for northern Europe will be massive migration. The right wing consequences that might arise from this are as scary as any weather related effects. A clearly united Left is essential, so lets get behind Carbon Dividend and Just Transition, at least til we have a better plan. J Cunningham's comment about storage is well taken. Carbon Dividend will be more just if it's adjusted (in an easily understood way) for income and travel needs/options. No one's lifestyle is going to come thru this unchanged. Swift, decisive, agreed action is needed. Ireland's CO2 is small but initiatives like State divestment from fossil fuels (Thomas Pringle's Bill) is quoted as a positive example around the world.