Carbon Dividends: A Potential Winning Policy for Everyone

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Could a carbon tax paired with payments to all Americans turbocharge climate action?

At today’s meeting of Students for Carbon Dividends at Yale University, undergraduate and co-president William Coleman, sandy-haired and welcoming, stands at the front of the classroom. He explains that the group “advocates for bipartisan climate solutions both on the local and federal levels, with an emphasis — of course — on carbon dividends. The group works hard to raise awareness for the policy in the hearts of voters and legislators alike.” 

A carbon dividends policy would be a climate solution that puts pressure where it’s needed: on the carbon-producing corporations, instead of on individuals. “People want a solution that’s cost-effective, gradual, equitable, and global,” Coleman says. Carbon dividends have the potential to be that solution.

Students for Carbon Dividends has expanded to other campuses, but real change is in the works through legislation. Here’s what everyone should know:

What Are Carbon Dividends?

Carbon dividends are meant to accelerate the transition to clean energy while stimulating the economy and putting money in people’s pockets. While several versions of the policy have been proposed, one of the most polished was developed in 2017 by the Climate Leadership Council. The broad strokes include a gradually rising federal tax on carbon emissions and the redistribution of all revenue to Americans in equal rebates. More precisely, the policy includes four main pillars:

  1. A price on carbon pollution: Economists generally agree that carbon pricing is the most-effective climate solution, making dirty fuels more expensive and incentivizing a shift to clean energy. 
  1. Carbon dividend payments to all Americans: All revenue from the carbon tax would be equally distributed to people. Temporary inflation is anticipated due to increased fuel prices, so rebates are implemented to offset the burden on our wallets. Importantly, “the vast majority of American families will receive more in carbon dividends than they pay in increased energy costs,” according to the U.S. Department of the Treasury.
  1. A phase-out of unnecessary carbon regulations: Carbon pricing would take the place of cost-ineffective regulations, allowing businesses the flexibility to make smart investment choices in clean energy. 
  1. Carbon adjustments for international trade to level the playing field and hold other countries accountable: Imports will be taxed on their carbon content. This protects American companies from competing with looser markets abroad and also encourages other countries to adopt their own form of carbon pricing. Also, as other countries, such as the European Union, introduce carbon border taxes, American businesses will stay competitive.

Why Carbon Dividends?

Supporters of carbon dividends say this policy is a win for everyone — for the environment and for people. 

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A carbon dividends policy would be a climate solution that puts pressure where it’s needed: on the carbon-producing corporations, instead of on individuals. ‘People want a solution that’s cost-effective, gradual, equitable, and global,’ says William Coleman of Students for Carbon Dividends. ‘There’s no such thing as a perfect solution or a silver bullet. … But this comes pretty close.’

This strategy boasts support from over 3,500 U.S. economists, 28 Nobel Prize Laureates, 4 chairs of the Federal Reserve, and 15 chairs of the White House Council of Economic Advisers. This broad support is remarkable considering the frequent disagreements among economists. Yet, even with near-unanimous endorsement, there’s been little attention in the press and in congress.

Coleman supposes, “It’s the complexity of a four-pillar solution combined with the social fatigue of hearing about climate change.” Despite this, he is avid about supporting a carbon dividends policy. 

The economic advantage of carbon dividends, according to economists, is that targeting carbon emissions at the source is likely to be the most cost-effective approach. Businesses will invest in clean-energy solutions that make the most sense for them, fostering the development of green energy technology and further bolstering the economy.

Moreover, carbon dividends put money directly into Americans’ pockets. With up to 70% of families potentially receiving more money than they spend due to inflation from the carbon fee, the policy ensures energy-gobbling households pay the most. As the fee escalates over time, so do the payouts, though as companies shift away from dirty energy, revenues and payouts may actually decrease.

What Are the Caveats?

Acknowledging the imperfections of any climate policy, Coleman says, “There’s no such thing as a perfect solution or a silver bullet. … But this comes pretty close.”

Coleman highlights a few concerns regarding carbon dividends, like that carbon taxes on exports may hurt developing economies, or that communities that rely on fossil fuels could see massive economic losses, or that simply enacting a broad tax on energy could be more economically disruptive than anticipated. 

Coleman emphasizes, “While these real losses mustn’t be overlooked, they should always be weighed against the impacts of climate change.” Despite the drawbacks of carbon dividends, the widespread support by economists points to a hopeful outcome. Further, as the country transitions to clean energy, the economy should grow enough to swamp any losses from the shift.

Is a Carbon Dividends Policy Enough?

Can carbon dividends effectively lead the United States to net-zero carbon emissions by 2050? The answer hinges on when the policy is implemented, setting the right carbon fee, and the pace of the fee’s escalation. It will be tricky to set a fee that moves energy markets forward without creating unnecessary economic disruption. This policy is no miracle cure for climate change, but if implemented soon and well, it would have impactful results.  

What’s the Hold Up?

Like most national environmental policies, carbon dividend policies have struggled to make it through the legislative process. California Representative Salud Carbajal has introduced a carbon dividends policy. While economists support the policy, it’s not as if economists have a large voice in national affairs. Additionally, ideological differences have created political hesitancy to accept any climate policy. 

Coleman has observed this first-hand. “I think growing up in Alabama … really humanized the opponents of these types of policies. … So many people in the south who care about economic stability, dangerous weather, and conservation would despise this bill just because it’s supported by their political opponents and addresses climate change.”

How Can You Help Get a Carbon Dividends Policy Approved?

To get momentum behind this policy, Coleman advises, “Reach out to your representative. I didn’t think it was something politicians cared about until I worked in one of their offices — understanding constituent needs is about sixty percent of what they do. Phone calls are great, letters are better, and meetings are incredible — you don’t have to be an expert, you just have to be passionate.”


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Annabelle Brothers
Annabelle Brothers
Annabelle Brothers just graduated from Martha’s Vineyard Regional High School, where she served as the president of the school’s environmental group, Protect Your Environment Club. She is also a student advisor at Bluedot Institute. In 2022, she became involved with the Martha’s Vineyard Commission’s Climate Action Plan which developed goals and strategies for Martha’s Vineyard’s future to mitigate the effects of climate change while building economic and infrastructural resilience. Annabelle will attend Yale this fall to study Environmental Engineering. She hopes to eventually take her skills overseas and help promote green urbanism in developing countries.
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