1. Urgent and effective action on climate change is needed to maintain the livability of our planet

The burning of fossil fuels has added such a large volume of greenhouse gasses to the atmosphere that it is threatening the livability of the planet. Greenhouse gasses cause the Earth to warm, which in turn causes storms, floods, heat waves, wildfires, and droughts to be more frequent and more extreme.  

Carbon dioxide is the major greenhouse gas, and the concentration of atmospheric carbon dioxide is rising. It reached 420 parts per million (https://keelingcurve.ucsd.edu/) recently, 50 percent higher than it was prior to the Industrial Revolution. After carbon dioxide is emitted into the atmosphere, it stays there for 300 to 1,000 years, according to NASA. What we do now—or fail to do—will have impacts for many generations.

2. Carbon fee and dividend benefits low- and middle-income households

If carbon tax revenues are given back to households in equal shares as in a carbon fee and dividend policy, the carbon tax is progressive—meaning the revenue recycling scheme benefits lower-income households more than proportionately. This progressivity occurs because higher-income households tend to consume more fossil fuels and more goods and services overall and thus contribute directly and indirectly more of the carbon tax revenues.

The 2020 Ummel study estimates the impacts on households if the United States were to establish a carbon tax that starts at $15/MT CO2 and increases $10/MT CO2 each year (which would increase the cost of gasoline by about 90 cents per gallon and the cost of electricity by about 3 cents per kilowatt-hour in 2030), and returns most of the revenues back to households in equal shares:

In the United States as a whole, the study finds that 61 percent of households would receive more than enough in the monthly dividends to offset the increased costs associated with the carbon tax. For those households in the lowest income quintile, that proportion would be 98 percent.

In Hawai‘i, an estimated 68 percent of households would come out ahead, and for those in the lowest income quintile, 92 percent would. Among rural households in Hawai‘i, which have to deal with longer drive distances than urbanites, 62 percent of all households would come out ahead.

A study by Oxford Economics shows that a carbon fee and dividend program would benefit households in the first eight deciles by income. That is, on average, eight of ten households—all but the top-earning twenty percent of households—would experience an increase in their disposable income under a carbon fee and dividend policy.

The U.S. Department of the Treasury conducted a similar analysis. Its study shows that, on average, a carbon fee and dividend would financially benefit households in the lower seven deciles.

3. Carbon fee and dividend delivers substantial emission reductions and complements other programs

A moderate carbon fee like the one in the proposed Energy Innovation and Carbon Dividend Act (EICDA; starting at $15 per metric ton of carbon dioxide equivalent and increasing by $10 each year) would increase the cost of gasoline by about 90 cents per gallon and the cost of electricity by about 3 cents per kilowatt-hour in 2030 (An Assessment of the Energy Innovation and Carbon Dividend Act).

The carbon fee would complement and strengthen other policies aimed at reducing emissions because it would add a price signal to existing policies, providing an additional incentive to conserve energy, transition to cleaner technologies, and operate existing technologies more efficiently.

The figure below shows how a carbon fee and dividend policy like the EICDA would complement the recently passed Inflation Reduction Act (IRA). If only the IRA remains in place, then 2030 U.S. emissions are forecasted to be 28 percent less than 2005 emission levels, and if permitting reform is made, the reduction would be 40 percent (red area). If the United States were to implement the EICDA on top of those policies, 2030 emissions are forecasted to be 52 percent less than 2030 levels (blue area) and thus the country would meet its National Determined Commitments (NDCs) of the Paris Accord. Therefore, national carbon pricing would complement the IRA and also help the United States meet its internationally agreed upon national targets.

Locally, a national carbon price would help Hawai‘i meet many of its environmental goals.  In the 2022 Hawai‘i legislative session, a multitude of bills were introduced that were dedicated to mitigating climate change, including a faster transition to clean, renewable electricity generation, a faster transition to electric vehicles, buildings that are more efficient, and adopting agricultural practices that effectively sequester carbon. National carbon pricing would make these state level policies more effective while ensuring a more equitable transition for low- and moderate-income households.

4. Carbon fee and dividend is good for the economy

A gradually rising price on carbon pollution would allow for predictability so businesses can better plan for the future. Knowing that prices for energy and fuels would rise in a measured way each year would allow business leaders to plan and budget for measures that increase efficiency and reduce consumption. It also would offer flexibility in their response—they can maximize resources by implementing energy efficiency measures, deploying renewables, and cutting fuel consumption. 

Because our trading partners—particularly the EU and Canada—are establishing carbon pricing along with carbon border adjustments, U.S. businesses risk being left behind if the United States fails to do the same. If the United States implements a carbon fee and dividend policy along with our own carbon border adjustments, U.S. businesses would not only avoid those tariffs, but also level the playing field for U.S. industries in the entire global marketplace and encourage our other trading partners to put a price on carbon.

Looking beyond those direct impacts of carbon fee and dividend, this policy could save Americans more than $800 billion each year, or more than $6,000 per household, because on its current course, America’s economy is forecast to shrink by up to 7 percent by 2050 due to the costs of climate change.

Furthermore, Metcalf and Stock find that the EU’s carbon price has had a very negligible impact on its overall economy.

5. Carbon fee and dividend can be readily implemented

The Federal government can use existing IRS and Treasury Department procedures to distribute the rebate (dividend). Doing so would avoid creating any new bureaucracy and minimize the risk of abuse and corruption.  

6. Carbon pricing has been successful elsewhere

British Columbia implemented its carbon tax in 2008, and it is currently $45 per ton. Studies have shown that it has had a minimal impact on the economy, while reducing emissions per unit of gross domestic product between 5 and 15 percent. The carbon tax has been so effective in British Columbia that the entire country of Canada has adopted it.

Sweden implemented a carbon tax in 1991 and has the highest price globally, at $137 per ton. It reduced its emissions by 25 percent by 2000. At the same time, its economy grew by 60 percent.

Carbon pricing would encourage investment and innovation in clean energy solutions. The European Union’s carbon price has been cited as one of the main reasons electric vehicle penetration in Europe far exceeds that of the United States (Climate Now podcast 2/22/2022). Furthermore, Metcalf and Stock find that the EU’s carbon price has had a negligible impact on its overall economy.

Singapore implemented a carbon tax in 2020 at about $5 per MT CO2. It hopes to increase this tax to between $34 and $60 per MT of CO2 by 2030. According to the Center for Strategic and International Studies, “Singapore is the only country in the region that is expected to see a real carbon emission drop (9 percent) in 2030 compared to 2019.”

7. Carbon pricing has broad support

Placing a price on carbon pollution has been endorsed by thousands of economists, including 28 Nobel laureates, four former Chairs of the Federal Reserve, and fifteen former Chairs of the Council of Economic Advisors, who have collectively said that “a carbon tax offers the most cost-effective lever to reduce carbon emissions at the scale and speed that is necessary.”

Also supportive are the U.S. Chamber of Commerce and Business Roundtable, religious groups, Pope Francis, and many prominent individuals and businesses.

The American Council for an Energy-Efficient Economy states that carbon pricing “would help equalize the market environment between electric end uses and fossil fuels and could be the single most impactful policy to drive building electrification forward on the federal and state levels.” (C. Cohn and N.W. Esram, 2022, Building Electrification: Programs and Best Practices.

Two-thirds of Americans favor taxing corporations based on their carbon emissions, according to a recent Pew Research Center Survey.

The World Bank asserts that carbon pricing is the most effective way to reduce climate pollution.

The Group of 20 (G20), which includes the United States, the European Union, China, and India, representing ninety percent of the world’s economy, encourages the appropriate use of carbon pricing when used among a wide set of tools to control climate change.

A recent report of the Intergovernmental Panel on Climate Change reinforces the need for action and reminds us about what is at stake. When it comes to action, the IPCC report says, “Pricing of greenhouse gases, including carbon, is a crucial tool in any cost-effective climate change mitigation strategy, as it provides a mechanism for linking climate action to economic development.” For more on what the latest IPCC says about carbon pricing, please click this link.

8. Carbon fee and dividend would protect U.S. industries in global markets

The European Union is starting to phase in a carbon border adjustment, and Canada is expected to follow soon after. The EU’s import taxes will start in 2026, initially applying to seven carbon-intensive sectors, including cement and steel. This means that if the United States fails to implement carbon pricing domestically, exports from the United States of fossil fuel-based products to those countries will be subject to tariffs, putting U.S. industries at a competitive disadvantage.

If the United States implements a carbon fee and dividend policy with a carbon price similar to that of the EU and Canada, U.S. businesses will avoid those tariffs in the European Union and Canada. Furthermore, the domestic carbon border adjustment that we would establish in concert with a domestic carbon fee would level the playing field for U.S. industries in the entire global marketplace and encourage our other trading partners to put a price on carbon.

9. A national carbon pricing policy can build on state-level action

Ultimately, we need to have national carbon pricing, particularly because it could include a border carbon adjustment that maintains the competitiveness of U.S. businesses. But pending national action, local carbon pricing policies can help lay the foundation for a national policy:

• State-level action can inspire other states, and ultimately the national government, to follow. Hawai‘i can lead the way to show that carbon pricing can be progressive, easy to implement, and reduce emissions. This opportunity to lead is not new to Hawai‘i. We’ve been leaders in climate policy that have inspired national action. Our 100% Renewable Portfolio Standard mandate is an example.

• National carbon pricing will take time to implement. By implementing a price on carbon locally, we are able to promptly tackle emission reduction at the state level.

• A local carbon price can also catalyze other policy, process, and technology innovations related to carbon reduction. It will encourage people and companies to identify low-carbon solutions that would otherwise not be implemented.

The local carbon pricing policy should include provisions that allow for it to be superseded by national policy as long as the national policy employs the same or greater level of carbon pricing.

10. Carbon pricing is effective and has broad support

Placing a price on carbon pollution has been endorsed by thousands of economists, including 28 Nobel laureates, four former Chairs of the Federal Reserve, the US Chamber of Commerce and Business Roundtable, religious groups, Pope Francis, and many prominent individuals and businesses.  Two-thirds of Americans favor taxing corporations based on their carbon emissions, according to a recent Pew Research Center Survey.

The World Bank asserts that carbon pricing is the most effective way to reduce climate pollution, and thousands of economists, including twenty-eight Nobel Laureate economists, four former Chairs of the Federal Reserve, and fifteen former Chairs of the Council of Economic Advisors (see https://www.econstatement.org/), have said that "a carbon tax offers the most cost-effective lever to reduce carbon emissions at the scale and speed that is necessary." The Group of 20 (G20), which includes the United States, the European Union, China, and India, representing ninety per cent of the world’s economy, encourages the appropriate use of carbon pricing when used among a wide set of tools to control climate change.

The report of the Intergovernmental Panel on Climate Change reinforces the need for action and reminds us about what is at stake. When it comes to action the IPCC report says: “Pricing of greenhouse gases, including carbon, is a crucial tool in any cost-effective climate change mitigation strategy, as it provides a mechanism for linking climate action to economic development.” For more on what the latest IPCC says about carbon pricing, please click this link.

Carbon pricing “would help equalize the market environment between electric end uses and fossil fuels and could be the single most impactful policy to drive building electrification forward on the federal and state levels.” (Cohn, C., and N. W. Esram. 2022. Building Electrification: Programs and Best Practices. American Council for an Energy-Efficient Economy. ACEEE Report)

11. Carbon cashback implements a top recommendation of Hawaii’s 2020-2022 Tax Review Commission

The 2020-2022 Tax Review Commission undertook a comprehensive review of the State’s tax system and made eight recommendations to improve it. After considering the UHERO study, which it commissioned in part, the Commission put Carbon Cashback at the top of its recommendations:

Impose a carbon tax to incentivize moving away from carbon-based fuels and adopting clean energy. We recommend that the majority of the proceeds be rebated as a cashback to the residents of Hawaiʻi, with a disproportionate distribution to low-income households

As to how to implement such a policy, the Commission recommended that:

The state government implements an upstream carbon tax by making use of the existing administrative infrastructure surrounding the barrel tax. This approach limits the administrative burdens of establishing a carbon price in Hawai‘i …”

12. State-level action can lead to national carbon pricing

Ultimately, we need to have national carbon pricing, particularly because it could include a border carbon adjustment that maintains the competitiveness of U.S. businesses. But pending national action, we should implement local carbon pricing as soon as possible for several reasons:

• State-level action can inspire other states, and ultimately the national government, to follow. Hawai‘i can lead the way to show that carbon pricing can be progressive, easy to implement, and reduce emissions. This opportunity to lead is not new to Hawaii. We’ve been leaders in climate policy that have inspired national action. Our 100% Renewable Portfolio Standard mandate is an example.

• National carbon pricing will take time to implement. By implementing a price on carbon locally, we are able to promptly tackle emission reduction at the state level.

• A local carbon price can also catalyze other policy, process, and technology innovations related to carbon reduction. It will encourage people and companies to identify low-carbon solutions that would otherwise not be implemented.

The local carbon pricing policy should include provisions that allow for it to be superseded by national policy as long as the national policy employs the same or greater level of carbon pricing.