Returning Cap-and-Trade Revenue to Consumers Recommended in California

As California prepares to implement its own cap-and-trade climate change law, state officials are looking to ease the economic burden on consumers by using revenues generated to deliver a tax rebate to families, an approach called "cap-and-dividend."  An advisory committee to the California Air Resources Board has recommended that 75% of up to $20 billion in expected annual revenue from the new measures be returned to consumers.  The return would occur in the form of annual dividend checks that could exceed $1,000 for a family of four.  The remaining 25% of the total revenues may be allocated to projects such as renewable-energy plants that would reduce greenhouse gas emissions.

The committee's report recommends the auctioning of greenhouse gas emissions permits.  The sales are expected to reap $2 billion to $22 billion in revenue a year from 2012 through 2020.  Specifically, the law would require utilities, refineries and other industrial polluters to buy permits under the recommendations, generating the revenue that would be returned to consumers to offset expected higher energy prices.   Consumers who reduced their own personal energy use would experience the highest personal savings, creating incentives for energy efficiency and lower greenhouse pollution by both producers and consumers of power in the state.

The national implications of the California recommendations are clear.  Unlike the federal cap-and-trade bill approved by the U.S. House of Representatives, the California Committee notably rejected the utilities’ request to give them free allowances.  In contrast, the U.S. Senate bill proposes a "cap-and-dividend approach" similar to California's committee proposal.  As a Center for Budget and Policy Priorities report noted last year, "policymakers can design a climate rebate to offset the impact of higher energy-related prices on low-income and middle-income households efficiently."

The California recommendations highlight a way to address the economic equity concerns over cap and trade revenues.  There is a broad consensus that returning funds to consumers, especially low income earners, can alleviate the burden of higher energy prices.  Nine states are already operating similar cap-and-trade auctioned permits, which have generated $500 million in the first 15 months.  Returning cap-and-trade revenues to consumers -- not the original polluting industry sources -- is the far better approach to address climate change and assure that average households are not burdened.

California EPA - Panel Recommends Auctioning, “Household Friendly” Approach to Carbon Regulation
California Air Resources Board's  Economic and Allocation Advisory Committee - Allocating Emissions Allowances Under California's Cap-and-Trade Program
Environment California - Global Warming Solutions and A Global Warming Rx: Make Polluters Pay for Global Warming Pollution and Invest in Clean Technologies
Los Angeles Times - California cap-and-trade: A political gamble?
New York Times - California Panel Considers Money from Climate Rules
Progressive States Network - Climate Justice: Promoting Equity in Dealing with Climate Change
Center on Budget Policy and Priorities - How to Use Existing Tax and Benefit Systems to Offset Consumers’ Higher Energy Costs Under an Emissions Cap
The American Enterprise Institute for Policy Research - Climate Change: Caps v. Taxes