The Importance of Semantics: Fees with a Dividend--Not a Tax

 

Dumping carbon into the atmosphere we all share

We need to appreciate the importance of semantics when we discuss the economics of carbon pricing. For example, we pay for municipal services and amenities such as garbage, water, sewer, and electricity. We recognize that our payments for these products and services are fees, not taxes. We pay fees for the specific goods and services that we receive, whether from the government or from business. Taxes, not the other hand, are compulsory payments to fund the operations of government at all levels. Taxes aren't based on the provision of particular goods and services to individuals and families. Taxes fund the common defense, schools, roads and bridges, research, social security, and other government programs. (Some public goods operate on a mix of user fees and taxes, such as national parks and mass transit.)

A "carbon fee" (or a "price on carbon") combined with a dividend, such as envisioned by the Energy Innovation and Carbon Dividend Act, is not a tax. In fact, it's hard to know what exactly to call it. The fees collected will be returned to the American people by way of regularly scheduled dividend payments. The revenue collected won't be used to fund government operations. There's not currently any government program quite like this that I can think of. 

Thus, a carbon fee functions like a sewer or garbage fee, except that it will be charged directly to producers, such as fossil fuel companies that extract and sell products that produce carbon emissions. At present, after we burn fossil fuels we effectively dump the remaining carbon into the atmosphere, where the excess carbon creates the familiar "greenhouse effect." In short, industrialized economies have treated the atmosphere as a garbage (carbon) dump for a couple of hundred years. But now the dump is full. A carbon fee puts a price on the use of our atmosphere as a carbon dump, and that fee will discourage use. Consumers of fossil-fueled products will see increased costs passed on to us, and we consumers will be able to compare the prices of products and services produced with more or less carbon pollution. Of course, consumers can use the carbon dividend to offset increased costs. But we can expect that most of us who have to watch our budgets will begin to look for less expensive (i.e., less carbon-intensive) alternatives. In fact, the dividends will prove a net gain for low and middle-income families. 

We should be conscious of this distinction when discussing any monetary implications associated with the production and use of carbon. The mention of a carbon tax is not only inaccurate; it also closes doors quickly and distracts many from any understanding of the benefits of a carbon fee. Thus, those who don't want to see a reduction of carbon pollution will refer to any price as a "tax" to try to trigger a reflexive, negative response. So if someone tries to talk to me about a "carbon tax," I readily agree that a carbon tax is a bad idea. But then I quickly pivot to say that a fee for carbon dumping with funds collected returned to Americans as a dividend is a great idea that we should all support and adopt immediately. 

Please join us (Citizens Climate Lobby) in promoting this fair and efficient approach to reducing our carbon dumping. Let's act to clean up our acts.