Hansen’s ‘fee and dividend’ plan: An exchange

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Should the proceeds of a tax on fossil fuels be spent on social programs or distributed? Ian Angus and Michael Friedman discuss climate change exit strategy

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James Hansen being arrested at a protest against the Keystone XL pipeline, which he calls the fuse to the biggest carbon bomb on the planet," because it would carry tar sands crude.

James Hansen being arrested at a protest against the Keystone XL pipeline, which he calls “the fuse to the biggest carbon bomb on the planet,” because it would carry tar sands crude.

Introduction by Ian Angus

For some time, prominent climate scientist and activist Jim Hansen has argued for a “fee and dividend” plan as part of a program to radically reduce fossil fuel use. Under his plan, which he counterposes to cap-and-trade and other such schemes, a heavy fee would be imposed on fossil fuels at the point of production or port of entry, and all the money collected would be distributed to the public on a per capita basis.

In the October 2013 issue of Monthly Review, John Bellamy Foster argued that socialists should support Hansen’s proposal as part of a broader “Climate Change Exit Strategy.”

Last May, Climate & Capitalism published an article on Hansen’s proposal by Anders Ekeland and a reply from me. We both supported fee and dividend, but I argued that Ekeland had misunderstood the dividend component of Hansen’s plan — he described it as “adapted to the U.S. political context” and “completely individualistic,” and suggested that in other countries the money collected could be spent by government on social projects. This, I said, missed the point:

“Unlike every actual carbon tax plan proposed or implemented in the world today, Hansen’s fee and dividend plan has a strong class component: it would take from rich corporations and give to the poor, creating a material incentive for working people to support the carbon fee and oppose corporate efforts to weaken it. If the money goes into government projects, no matter how worthy, it will be seen as just another attack on working class living standards, and how it is spent will be subject to the whims of capitalist politicians.”

Recently ecosocialist Michael Friedman wrote questioning that part of my article. He has kindly given permission to post his email here, followed by my response. I look forward to further discussion in the Comments section.

A comment from Michael Friedman

Dear Ian:

Someone posted your response to Ekeland’s critique of Hansen on the Solidarity ecosocialist list. I responded with some misgivings and said I should seek some clarification from you, and so I shall. My note to the list:

First, unless the fee were very substantive, indeed, it would amount to very little when divided among the 242 million adults in the U.S. For example, U.S. and Canadian fossil fuel corporations made $271 billion in profits in 2012. So, if you taxed 100% profits, each adult would get around a thousand bucks. A year. Meanwhile, fossil fuel price increases tend to have a multiplier effect (at least they have in the past) on product price increases, that is, product prices have gone up as multiples of the fuel price price increases. At least in part that is because of the many ways that fossil fuels currently enter into final product costs: transportation, energy and raw materials of production, packing materials, other energy costs, etc. And the more substantive the fee, the more prices of downstream products will go up. Food, housing, clothes, transportation, heating — it would all go up: Weekly grocery bills, monthly rent and winter heating, metro cards — poor people pay disproportionately for these, as it is. So, I don’t see how Hansen concludes that “the poorest 60% of the U.S population … would receive more in dividends than they would pay in increased fuel and other prices.” At the very least, the increase in costs would eat up the dividend.

Angus argues that “Hansen’s fee and dividend plan has a strong class component: it would take from rich corporations and give to the poor, creating a material incentive for working people to support the carbon fee and oppose corporate efforts to weaken it. But, the dividend wouldn’t just go to the “poor” (and since when is “poor” a “class”?), it would go to everyone, and as Ekeland says, as an individual bonus. So, there is nothing intrinsically in it to generate class expectations, collective consciousness or a sense of class power. No more — and probably less — than my April tax refund, which at least accrues because my income is so fucking low.

Angus further argues, “If the money goes into government projects, no matter how worthy, it will be seen as just another attack on working class living standards, and how it is spent will be subject to the whims of capitalist politicians.” By this reasoning, socialists should no longer raise slogans like “money for schools, not for war.” I think Angus misses the point of raising such demands in a transitional program. Yes, they are ameliorative and cost-effective, but they also point to the inability of capitalists to fulfill these social needs and — in our case, very important — they counterpose the benefits of social to individual needs fulfillment.

A reply by Ian Angus

Dear Mike:

Thank you for writing. You have raised some important and thoughtful questions — and you’ve done so clearly and concisely. I hope my reply is as clear, but I’m afraid it will not be as concise!

First, I want to stress that my primary criticism of Ekeland’s article dealt not with how the “dividend” should be distributed but with the fact that, in the words of my title, “Hansen’s program is more than a carbon tax.”

“Ekeland reduces Hansen’s program to just one element – fee and dividend – entirely omitting many essential components. He compounds that error by using fee and dividend as a starting point for defending carbon taxes in general.”

As I wrote, fee and dividend as a standalone measure “isn’t sufficient by itself, and isn’t suitable for building the mass movements that socialists know are needed.” Hansen himself says, “By itself a carbon fee cannot solve the energy problem and allow rapid coal phase-out.” That’s why his program includes a range of measures, including phasing out all coal-fired plants, stopping all production of non-conventional fossil fuels, including tar sands oil, shale oil and gas, and methane hydrates, extensive carbon conservation policies, a transition to low-carbon farming and forestry, and more.

Hansen’s program is not perfect or complete. But when an important figure in the environmental movement targets corporations instead of working people as consumers, socialists must take heed. We need to support that important advance, while of course continuing to raise our own, more radical demands.

Ekeland’s approach, by contrast, made Hansen’s program less radical. He described “command-and-control regulation” — which Hansen’s full program would certainly entail — as a “totally unrealistic” approach that leads inevitably to black markets with “horrific prices and speculation.” He reduced Hansen’s attack on the property and activity of fossil fuel companies to a regressive tax on consumers.

In Ekeland’s view, Hansen’s plan to distribute revenues to the public on a per capita basis just reflects the political backwardness of the U.S.A. — in countries “where people are less skeptical of ‘big government’” the money could be kept by the government and used for progressive projects.

As you know, I strongly disagreed, saying that such an approach would be seen “as just another attack on working class living standards.”

You raise three objections to my argument: that the dividend would not be big enough to win wide support, that I’m wrong to say Hansen’s plan has “a strong class component,” and that calling for the funds to go into social programs is a more transitional approach. I’ll respond to each point in turn.


How much money? You question whether the money raised by Hansen’s fee would be sufficient to motivate broad support. I haven’t checked the numbers, but I accept your calculation that taxing 100% of fossil fuel profits would only produce about $1000 per person for distribution, and in that case “at the very least, the increase in costs would eat up the dividend.”

But Hansen is not proposing a tax on profits, which accountants can easily conceal or minimize — he calls for a tax on carbon, which is physically measurable and hard to hide. That would produce a different result. In Storms of My Grandchildren (Bloomsbury, 2009), he explained his calculation of the dividend:

“As an example, consider the point in time at which the fee will reach the level of $115 per ton of carbon dioxide. A fee of that level will increase the cost of gasoline by $1 per gallon and the average cost of electricity by around 8 cents per kilowatt-hour. Given the amount of oil, gas, and coal sold in the United States in 2007, $115 per ton will yield $670 billion. The resulting dividend will be close to $3,000 per year, or $250 per month for each legal adult resident; a family with two or more children will receive in the range of $8,000 to $9,000 per year.” (p. 209)

I’m sure we agree that $3,000 a year would be a significant benefit for the 42 million people who live below the official poverty line in the U.S., and that $9,000 for a two-adult, two-child family would make a significant difference in a country where the median household income in 2012 was just $51,000. Hansen estimates that 60% of people would receive more than they would pay, and to my knowledge no one has disproved that.


Class component? You question my statement that Hansen’s plan has “a strong class component,” pointing out that the payments would go to “everyone … on an individual basis” so “there is nothing intrinsically in it to generate class expectations, collective consciousness or a sense of class power.”

By giving the money to everyone, including the wealthy few to whom it would make no difference, Hansen’s plan would minimize bureaucracy and simplify distribution, and above all avoid the intrusive and demoralizing means tests that characterize most welfare schemes under capitalism. Those are goals socialists should support.

More important, this arrangement ensures the “polluter pays” character of the program. This is in stark contrast to all other “price on carbon” proposals, which would make the working class pay, in increased prices, for reducing emissions that they didn’t cause. Hansen’s plan targets the corporations, and shields working people from the worst effects of the transition away from fossil fuels. That’s why I say it has a class character.

As for generating “class expectations, collective consciousness or a sense of class power” I agree that a monthly check by itself won’t do that — nor will any plan by itself. A sense of class power will only be built through mass mobilization to win such demands and to protect the gains we win. Hansen’s program — his full program, with fee and dividend as one component — provides a basis for a united movement to achieve such mobilization.


Social programs? Ekeland seemed to argue that whether the money should be spent on government programs or distributed depends on whether the local political culture is individualistic or ‘less skeptical’ about government. If I understand correctly, you argue that directing funds to social programs would be superior in either situation, because it embodies a transitional approach that counterposes “the benefits of social to individual needs fulfillment.” You say that my argument would lead socialists to also oppose slogans like “money for schools, not for war.”

I disagree. When we say “money for schools, not for war” we are not calling for a new regressive tax. Quite the opposite: we are demanding that better schools be funded without reducing workers’ incomes, by redirecting money that is currently used for programs that are contrary to workers’ interests. We are directly contradicting the standard capitalist argument that improved social benefits must be paid for in a lowered standard of living, an argument that frequently convinces workers to oppose social programs.

A fee-without-dividend plan would effectively be a new regressive tax, paid in increased prices. Like most other “price on carbon” proposals, it would “make consumers pay” and hit the poorest people hardest. Socialists are in favor of social solutions, but we oppose making the working class pay for them. That’s why the socialist movement has traditionally opposed sales and other indirect taxes. In my view we should continue to do so.

Yes, transitional demands should point to social solutions. But even more importantly, they should contribute to mobilizing mass action against our corporate rulers and for concrete, progressive goals. That, I think, is why socialists should support fee and dividend — because it connects the demand to reduce emissions, which is important but seems abstract to most people, to the very concrete struggle against wage cuts, austerity and poverty. What’s more, the solution it offers is both eminently reasonable and objectively radical.

Ekeland, despite his unfortunate support for regressive taxes as social policy, actually got that point right. Despite his previous objections to per capita distribution, he concluded his article with what can only be read as an endorsement of Hansen’s proposal:

“‘Climate’ money each month going into poor people’s bank accounts would unite the demand for income redistribution with working people’s fundamental long-term environmental demand for a healthy planet.”

Really, that’s the whole point, and I don’t understand why he didn’t support it consistently.


Finally, I just want to add that while it’s important for ecosocialists to discuss these issues, the appropriateness of a given proposal cannot be judged in the abstract. The only test is practice — a demand or slogan may be ideal in one situation and completely wrong in another. Our general approach is to advocate what Marx and Engels called “despotic inroads on the rights of property, and on the conditions of bourgeois production,” but the question of how to allocate any proceeds derived from those inroads is not a matter of principle, but of which arrangement is most effective in given circumstances.

Jim Hansen’s program seems to me to offer a solid basis for organizing a movement that unites left-greens and green-lefts to challenge the corporate polluters today, but it isn’t carved in stone. I firmly expect that major and minor changes will be required as our “exit strategy” is tested in our common fight to liberate humanity and save the earth.

Mike, thank you again for writing. Open discussion, questioning and debate is an essential part of movement building, and I look forward to much more.


More from my notebook …


  • Very interesting and informative debate, thanks.

    The problem in the EU is that tax decisions can be taken on an EU level only unanimously. With the single market no country can really move in very different tax systems or levels. This is part of the neo-liberal design of the EU: free markets, constrained politics. The dismal cap-and-trade system was put in place, because environmental policies can be decided on qualified majority basis. The business lobby got in offstess and excesive quotas, and it has lost even its small potential in steering move away from fossil fuels.

    Since the Euro zone and EU are in a turmoil, there would be space new openings, especially with possible UK exit. The unanimity on taxes could perhaps be corrected in the next round of treaty change, possible with more countries opting out. So it is worthwhile to push the fee and dividend domestically and internationally even though it is an uphill struggle especially in the EU.

    Best, Marko

    • Hi Marko,

      I think that this is portrays the possibilities for national taxation policies in the EU as more limited than they actually are. What about the already existing carbon tax in Sweden? Check out the report, from the US gov. National Renewable Energy Laboratory, entitled

      Carbon Taxes: A Review of Experience and Policy Design Considerations
      Jenny Sumner, Lori Bird, and Hillary Smith


      Generally the tax policies are not that harmonized as there is different national tax “traditions”, so I think that one, or a smaller group of countries like the Nordic, could take a lead.

      The more tricky question is the question of “border tax adjustments” so that domestic industries would not be outcompeted by non-carbon-taxed imported goods on the one hand and tax refunding for export industries so that they were not outcompeted in export markets.

      But that some countries could introduce a general carbon tax and introduce border tax adjustments I think is entireley feasible taxation wise – if there is a political will to do so, and especially as a way to stimulate other countries to follow.

      British Columbia had a rising carbon tax for five years – and did not implement border tax adjustments since the tax was reatively low.

      So while not trying to hide the challenges by introducing a fee&dividend system in a EU country I would clearly put the emphasis on the urgent necessity to introduce such at tax, it’s positive effect on reducing inequality (= taxing the rich, giving to the poor) and stimulating the creation of climate jobs as green technology and infrastructure became more and more profitable.

      In my opinion the “One million climate jobs campaign” really needs a carbon tax to give a great stimulus to the insulation of houses, building of offshore wind-mills etc. There is nothing in the climate job campaign that directly “attacks” the consumption of fossil fuel, so renewables, the energy saved by “green” housing and generated by wind-mills might just be used for ever greater consumption, for a growth in non-sustainable resource use and not for an sustainable increase in experienced life quality.

      Anders Ekeland, Norway

  • Could I draw attention to an article that I have written in support of James Hansen’s exit proposal. It can be found at http://www.internationalviewpoint.org/spip.php?article3390

    It supports Hansen’s proposal from the same point of view as Anders Ekeland does. Whist it welcomes the support for Hansen from JB Foster it also takes issue with some aspects of his approach.

    Alan Thornett

  • Firstly, I should emphasise that I don’t oppose the demand for a fee and dividend type approach in principle. But I think it is wrong to term it an “exit strategy”, which suggests that it has the potential on its own to deliver a zero-carbon economy (of what type?) which is what is needed. Even the model set up by the proposers of this measure do not make such a claim. It is incumbent on those who make grand claims for this reform to show that they are valid. A start would be an assessment of the model that Hansen uses.

    The link is currently not working, but is meant to be at: http://www.komanoff.net/fossil/CTC_Carbon_Tax_Model.xls

    • Phil points to the fact that the the Hansen-Komanoff rise in the fee is way to slow and that is also my view. But this is not an argument against the fee and dividend proposal, since it is obvious from Hansens writings and actions that he really wants things to happen.

      I interpret the low level of the fee as a tactical approach. In order to get the fee and dividen policy implemented the effects should not be dramatic in the first years. As poor people see thousands of dollars on their accounts – what would be their rational behavior as soon as they realize that it is an “easy” way to tax the rich? Vote for a much higher fee, steeper increases. Not all poor people, the more dependent on the car and with no “green” alternatives, you would want a lower fee and a slower rise.

      But this is basically going to be decided by democratic discussion. I think it really would engage people how big the fee should be. We eco-socialists would forward our proposal for how fast the fee should increase. Hansen would put forward his.

      A fee and dividend system would bring the issue of saving the climate much closer to most people. You would benefit from the dividend but you would be hurt by the rising prices…

      To me arguing that the fee is to low like Phil Ward does – or the “dual” position of Daniel Tanuro – that in order to work it would be “impossibly” high is just a way of avoiding taking a clear position on which way to make fossil fuel expensive, prohibitively expensive. It is faced with this obvious necessity that the far left – regrettably – still hesitates to develop an operative strategy.

      We should not stand on the side line and ask if it will work, we should throw ourselves into the battle for making fee and dividend work – because it can work. If Hansen is to feeble – let’s be more daring.

      Anders Ekeland

      BTW: if I go to http://www.komanoff.net/fossil/ and click on the spreadsheet link, I can download the spreadsheet.

    • Phil: I agree — Fee and Dividend is a reform which socialists can and should support, but is not an “exit strategy” by itself. See my response to Anders, below.

  • The latest contribution by Ian to this exchange I find very encouraging. I felt that his first response to my article on some points misrepresented my view.

    I also felt that Ian’s response was not quite clear – did he see Hansen’s proposal as THE – not the only! – but THE key element in an “exit strategy”?

    So in May I decided not to start a discussion about to which extent misunderstood me, but to see if Ian was interested in promoting the Hansen proposal as he said he had done. Ian’s latest contribution was just what I had hoped for! We are clearly converging to a common view!

    Let me just for the protocol clarify a couple of points:

    a) I wrote that there are aspects of the Hansen proposal that *merits* further discussion, that is its individualistic/atomistic character because in some countries like the Nordic taxes is not – for obvious historical reasons – “hated” as in the US, where the anti-tax ideological hegemony is very dominant.

    – but my personal opinion, then, and even more now – is that the 100 % redistribution is a essential element of an Hansen inspired exit strategy, but that fundamentally any use of tax income should be decided in a democratic process.

    b) Ian argues that “Ekeland reduces Hansen’s program to just one element ­ fee and dividend ­ entirely omitting many essential components. He compounds that error by using fee and dividend as a starting point for defending carbon taxes in general.”

    – but this is not correct. I see fee&dividend as a *key* element in making fossil fuels expensive in a socially just way, but by no means do I reduce Hansen’s proposal- or an ecosocialist exit strategy to only fee and dividend.

    – I do certainly not defend carbon taxes in general. It must be carbon taxes with a socially just redistribution.

    I completely agree with Ian that:
    “Hansen’s program is not perfect or complete. But when an important figure in the environmental movement targets corporations instead of working people as consumers, socialists must take heed. We need to support that important advance, while of course continuing to raise our own, more radical demands.”

    This means that it is of paramount importance to get the “hard left” to take the lead in making fee and dividend THE KEY element of an exit strategy. In the “Peoples March” in September – fee and dividend should have been slogan. I am half way through Naomi Klein’s book “This changes everything” and it seems like she is not even mentioning Hansen’s proposal. Despite Hansen being mentioned four times, is thanked for having read parts of the book etc.

    On pages 112 – 119, she outlines the positive effect of a fee and dividend like mechanism, but she does not make it to the key element of her exit strategy. On page 114, it is only the fifth of six bullet points. I’ll return with a review of the book when I have read through it.

    The brutal fact is that to my knowledge, no hard left party/group, eco-socialist or not has adopted a Hansen inspired strategy. I think the Forth International’s British section is positive, but it is still not officially adopted “party line”. http://socialistresistance.org/6171/james-hansens-exit-strategy-from-global-warming.

    I am currently trying to get heterodox economists to launch an international appeal in favor of a fee and dividend system. As a member of the Norwegian Left Socialist Party I am trying to win the party for fee and dividend and some progress have been made, so there is a real hope that the party congress in March 2015 will adopt a Hansen strategy.

    As an Fourth International member I am of course trying to get the FI to adopt it, some progress, but things are not moving fast enough.

    As far as I know it is only the Norwegian Greens that *formally* has adopted it, buy a “coup de national conference” from a local branch. The leadership does not promote it at all.

    There is also some local branches of “Friends of the Earth Norway” (Naturvernforbundet) that are in favor of fee&dividend, so something is happening also among the environmentalists.

    It would be very interesting to get information about other Hansen-based initiatives – and of course other exit strategies. The important Campaign against Climate change in UK seems to have “One million climate jobs” as the key element in their exit strategy. I am in the process of writing a paper evaluation that strategy – which is also the strategy of an important umbrella organization for scientists, environmentalists and some progressive unions in Norway. Similar initiatives can be found in a few more countries also.

    For Europeans, the policies of the European Left Party and the European Green Party is of course very important. How many years will it take before one – or both – proposes a real concrete alternative to the rotten European Emission Trading System?

    … There is really work to be done in order for all progressive forces to unite on something that deserves the name of an exit strategy. A broad alliance is indeed needed if anyting is going to happen the next six years, 2020 being a very important milestone.

    Anders Ekeland

    • Anders, I’m very pleased that, contrary to my understanding, you agree that the 100% redistribution is an essential element of the fee and dividend plan. So in that respect we have no difference.

      However, my original article was titled “Hansen’s program is more than a carbon tax” – and I am still not clear that we agree on that.

      In the Monthly Review article that initiated this discussion, John Bellamy Foster described fee and dividend not as an exit strategy in itself, but as starting point for one – “Hansen’s fee and dividend is necessary under present conditions but is only a single wedge in what must be a much more comprehensive climate-change exit strategy.”

      In fact, as Foster pointed out, Hansen’s full program is a “combination of a steadily rising carbon tax, conservation, new technology and infrastructure, and global reforestation — together with the closing of coal-fired plants and preventing the use of non-conventional fossil fuels such as tar sands oil and shale oil and gas.”

      But your article only mentioned the fee and dividend wedge, and you explicitly rejected “command-and-control regulation,” which most of Hansen’s program would clearly require.

      Your present comment calls fee and dividend “THE KEY element of an exit strategy” — to the extent that you think that it should have been raised as an agitational slogan at the Peoples Climate March and that its absence is a major weakness in Naomi Klein’s book. I’m dubious about both propositions but I’m particularly concerned that we not isolate one element of Hansen’s plan and set the rest aside.

      • Ian, I my feeling is that we are converging. I completely agree with John B. Foster: In that Hansen’s full program is a:

        “combination of a steadily rising carbon tax, conservation, new technology and infrastructure, and global reforestation — together with the closing of coal-fired plants and preventing the use of non-conventional fossil fuels such as tar sands oil and shale oil and gas.”

        My point has been that still no far left party/group has adopted the fee and dividend (f&d) part of that “full programme” because it is the difficult part. The rest of the full programme represents no problem for the far left. But tripling the gasoline price, tripling the “brown” electricity bill – that is a mental challenge for the far – and eco-socialist left.

        I did not – and do not reject “command and control” policies. They are clearly needed for example to phase out (= close down) Norway’s oil and gas production in a planned, controlled way. Price signals will clearly not make it fast enough – and they will punish the workers. So it is the same problem as converting arms factories to producing something usefull – a conversion plan is needed.

        But the real discussion here is – should closing down of fossil fuel production by political activism (the Patrick Bond strategy) be THE KEY element – if so it is regressive. It raises prices, it raises the cost of living without any compensation at all for poor and ordinary people. That is way the f&d is a KEY element in any realistic strategy. It is highly unlikely that a closing down strategy would be successful on the necessary scale. Because ordinary people do not have any short term gains from it – on the contrary – they get only rising prices w/o compensation.

        Ian writes: “In my view, without a full program of such measures – what Marx and Engels called “despotic innroads on the rights of property, and on the conditions of bourgeois production” – there is no fossil fuel exit strategy.”

        This is of course correct, but still rather abstract. But how do we get people to make those despotic innroads? How do we get people to start moving in that direction? I would say that giving ordinary people at the same time a material incentive (dividend) and a moral, social justice incentive = tax the rich is the KEY ELEMENT in getting people engaged. An abstract demand for “system change, not climate change” will not make people move.

        So it is not the other elements of Hansen’s strategy that is a problem for me – or the far left – it is the f&d part which is hard to swallow, hard to digest for obvious, historical reasons – which are outdated faced with the unprecedented threat of climate change.

        So we are on the same page here Ian. The problem is that the far left is not on the fee and dividend page. No organization has it as either a key or a subordinate element of their climate policies.

        That’s the key problem for eco-socialists.

        Anders Ekeland

  • This is an excellent discussion of the pros and cons of Hansen’s fee and dividend proposal.

    A fossil fuel fee or carbon tax would be a progressive tax, in that the rich use more fossil fuels, directly and indirectly, than do the poor. They have multiple homes, large automobiles and even private jets. It would hit especially hard on those of the rich who own interests in fossil fuel companies.

    A carbon dividend would be the best way to disburse the money raised by a fossil fuel fee. There is a whole literature developing on the benefits of a guaranteed annual income (Google: “Basic Income News”).

    One factor that has not been mentioned in the discussion so far about the carbon dividend is that we would not want to create a bureaucracy that would be dependent on the fossil fuel fee. The object of the whole exercise, after all, is to reduce and then eliminate our use of oil and coal as fuels. A fossil fuel dividend would require a minimum of bureaucracy.

    • I don’t think the possible objections to Hansen’s fee and dividend proposals include that it would create an extra layer of bureaucracy: that bureaucracy is already there in the form of the various states’ Inland Revenues.

      It is also the case that the tax is not regressive, if implemented in the form that Hansen and Ian Angus suggest. However, no-one has questioned whether it will actually work. I have several comments to make on that:

      1) More-than-compensation for the tax for most people would surely result in an increase in volume consumption by those people of raw energy and energy-containing consumer goods, even if, as is inevitable, prices rise to meet the carbon tax.

      2) In the year after Hansen proposed the tax in his book, the USA experienced a rise in gasoline prices ($1 per US gallon) commensurate with the full implementation (over 10 years) of his $110 per tonne tax. Admittedly, the rise was only on petrol but, with no compensatory rise in income, the fall in gasoline use was only 3%. This suggests that the effects of the fee and dividend could be very small, less than, say, a comprehensive car-sharing scheme for commuters.

      3) Even in the spreadsheet on which Hansen’s proposal is based, presumably designed to present the fee-and-dividend in the best possible light, the modelled effect on carbon emissions is a cut of only 15% in ten years.

      4) I’m not convinced that Hansen is in favour of regulation to keep fossil fuels in the ground. Although his admirable activism against Keytsone XL may appear to be promoting such an approach, his writings suggest he really does think the fee-and-dividend is the main thing and that he sees activism as a way of publicising this (which, of course, is not necessarily inherently wrong). He believes that the consequence of the tax will be to keep fossil fuels in the groud, not that this should be legislated in any way. Why else would he be at pains to emphasise that his approach is “conservative”, designed to appeal to GOP members and opponents of “big government”?

  • I think the main question is: who pays the tax? You state that it will be corporations, which makes the tax progressive. But experience and econometric data tells us very clearly that it will be consumers who pay the tax, in the form of higher prices on energy and other commodities. Energy companies, in particular, have always passed on 100% of the costs of environmental regulation, be it cap-and-trade or taxes, to the consumers.
    A carbon tax is a consumption tax and, therefore, a regressive tax. There are only two ways to avoid this: 1) the revenue is redistributed in a way that compensates those who are hurt the most (poor people, rural people, etc.); 2) there is such a significant societal and economic shift that carbon actually becomes a luxury (everyone has access to public transport, domestic thermal insulation, etc.). The first solution fits into the “fee and dividend”, more or less, but to be sure that the tax is not regressive would be an administrative nightmare. The second solution is preferable, of course, but it implies that a carbon tax can, at best, be a small part of a “climate exit strategy”. Hansen does not think of it in this way and rather puts his carbon tax plan at the center of his strategy which is very problematic.

  • Interesting discussion. You do omit to address the criticism concerning the increase in product prices. A carbon tax would undoubtedly be inflationary as companies would pass increased costs on to the consumer.

    However I don’t agree with Michael’s statement that “fossil fuel price increases tend to have a multiplier effect (at least they have in the past) on product price increases, that is, product prices have gone up as multiples of the fuel price price increases.”

    Oil prices in the 80s and 90s averaged $20 a barrel and now we’re averaging $100 a barrel and product prices haven’t increased 5 times let alone more than that. Energy is of course a significant component of businesses’ costs but it’s only a component so while energy prices rises will undoubtedly push prices higher I don’t see how they could push prices up at a faster rate than the increase in energy prices.

    Also the carbon tax will provide an immensely strong driver for businesses to increase their energy efficiency and decarbonise their energy sources in order to gain a price advantage over their competitors.