Friday, June 06, 2008

What to do with the Carbon Tax/C&P Dinero?

A debate has started up as what to do with the money we'll get from the carbon tax or cap and trade plans. Both McCain and Obama are planning on a cap and trade scheme. Obama's will have an immediate auction while McCain's will have an allocation initially without auction and then phase in an auction over time. Both have issues - big price jumps and initial lobbyist uber influence, respectively - but I am not going to discuss that in this post. For now, this post is dealing with what I'll call carbon money.

There's a tussle online over what to do with the dinero. It's going to be a LOT of money. The permits could be worth $7 trillion by 2050. If you ponder that, even if you spread that over 40 years, that's something like $175 billion dollars per year. That's a nontrivial chunk of change there. What are we going to do with it?

Before we tackle that, you have to keep some things in mind. First, this is not a long term, guaranteed revenue stream. The whole point is that this is to make up for the 'market failure' of failing to get rid of carbon dioxide emitting industries. Or in the very least get the resources to offset or mitigate the damages from those industries that emit but are irreplaceable. This does mean the revenue stream, even if the auctioned price each year rises should and is intended to fall: we don't want the industries to keep emitting!

Therefore, anything that we want to spend this money on must be short term funding items. The most popular idea is to fund the development of technology to replace the fossil fuels with renewables and other alternate technologies. that's the thrust of the Lieberman bill that McCain backs. Another suggestion might be to set up an insurance fund that would cover the problems that may stem from the large scale implementation of nuclear power plants. Environmental clean up is another suggestion I've come across. Space projects could be yet another. Education reform yet another. There are plenty of suggestions and at an average of $187 billion there's a nontrivial amount of money to be had. There's one suggestion that I came across, I am not so sure is a good idea.

Robert Reich suggested, here and above, to give it all back, to send out dividend checks to the people each year.

I am less than enthused with this option. Each American would get about $625. My family would get about $1,875. While I'd appreciate that amount (!), I have to say that I think someone needs to sit down and do the math associated with moving the money around in the economy like this. I may have time for this but I doubt it.

It also seems to be terrible short sighted. Rather than investing in something, it's merely a redistribution of wealth. Perhaps an unwise method for one at that.

Small Update: Climate Feedback has more.

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