Tim, thanks for describing the relatively clear mechanics (and rationales) behind Cap and Dividend or Cap and Rebate or tax and shift or the various other proposals that rely on the same logic.
The problem with this logic though, is that it assumes we all start out on the same footing and that our carbon emissions are entirely the result of decisions we have control over. Unfortunately, that's just not the case.
Here's one simple example. I used to live in Eugene, Oregon. I was served by a monopoly utility, that happened to have a very low carbon footprint for it's electricity supply. Since the utility was a publicly-owned, municipal utility, it had historically been granted access to the subsidized federal hydropower system built in the Pacific Northwest during the New Deal era and the decades afterwards. My carbon footprint for electricity generation was just 450 lbs of CO2 per kilowatt-hour.
Flash forward a year and I now live in Portland, Oregon. My local utility there is an investor-owned utility, PGE. PGE, since it's privately owned, has been historically shut out of the federal hydropower system (which is prioritized for public utilities based on decades-old rural electrification policies) and therefore imports a good deal of coal-fired electricity from Montana and other points east. PGE also relies pretty highly on natural gas. The result: the utility's carbon footprint is about 1,200 lbs per kilowatt-hour, almost three times
what it was for the Eugene utility. And heck, the other utility that serves parts of Portland, Pacific Power, has a carbon footprint for electricity of about 1700 lbs/kWh, so good thing I didn't move in across town, or the picture would be even worse!
Now, I do all sorts of things to conserve electricity, and did basically the same things in both cities. But simply by moving between the two largest cities in the very same state, my carbon footprint from electricity tripled
- and the difference in emissions was the result of about a century of historic electricity policy and regulation, investment decisions of monopoly utilities, and the local availability of various resources (e.g. hydro) not my personal decisions.
The same is true writ-large all across the United States. The midwestern states are far more dependent on coal than the Northwest. That's because when rural electrification proceeded in the early half of the 20th century, the government subsidized the lowest-cost available resources. For the Northwest (and much of the West), that hydropower at federally-constructed and operated dams. For the Midwest, that was coal-fired power plants. For the Southeast, a mix of the two (i.e. TVA), but more coal than hydro.
Once you factor in historic land development patterns, differences in weather, and all sorts of other factors outside of an individuals control, and you see that the image of perfectly rational actors freely chosing whether or not they want to emit carbon based on market signals is far from the reality of the situation.
This makes dividend and rebate schemes more than just unfair; it presents very real political challenges. Just look at a map of the most coal-dependent states and a list of the critical swing votes
needed to secure passage of any climate policy, and you can see what I mean...
Other than that, it's a fine economic theory.
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