David Warsh: A climate dividend plan gains wide support

SOMERVILLE, Mass.

The existence of a concrete and credible plan to steadily reduce carbon emissions in the United States makes it possible that the 2020 presidential election could be about climate change instead of the vandal presidency of Donald J. Trump. How likely IS that? Today, it’s anybody’s guess. But a couple of things have become apparent this month.

One is that the preponderance of expert opinion, at least among the most distinguished economists, now supports a climate dividend plan. (Resource economists, a subset of the whole, hard to sample, and less attuned to politics, may be a different matter.) The other is that a logical candidate to campaign on the issue is on the verge of declaring his candidacy.

The revenue-neutral tax and dividend plan has been publicly espoused since 2013 by two grandees of the Republican Party, James Baker and George Shultz, secretary of s

tate, respectively, to George H. W. Bush and Ronald Reagan. They first proposed it, with former California Gov. Arnold Schwarzenegger, as Western forest fires began to ramp up.

Since then, the Climate Leadership Council, a two-year-old Washington think-tank founded by serial policy-entrepreneur Ted Halstead has built support for the plan among multinational corporations, business leaders, and non-profit organizations. Founders include BP, ConocoPhillips, Shell, and ExxonMobil, among major energy companies; General Motors, Proctor & Gamble, Unilever, AT&T, Johnson & Johnson, the Conservation International, the Nature Conservancy and the World Wildlife Fund.

In 1997, Halstead organized an Economists Statement on Climate Change, drafted by Kenneth Arrow, Dale W. Jorgenson, Paul Krugman, William Nordhaus, and Robert Solow, on the eve of Kyoto Protocol negotiations. The framers then were ambivalent as to the best means of emissions control: either carbon taxes or cap-and-trade permit auctions designed to meet emission targets. Since then, support has waned for cap-and trade, on grounds that those auctions concentrate power in the hands of administrators and politicians.

This month, the CLC published a second expression, Economists Statement on Carbon Dividends, signed initially by 27 Nobel laureates, all 4 living former Fed chairs, and 15 former chairs of the Council of Economic Advisers.

This time the signatories came down firmly on the side of carbon taxation. Among laureates, only Paul Krugman, Joseph Stiglitz, James Heckman and Edward Prescott declined to sign. Organizers included politically involved economists Martin Feldstein, Lawrence Summers, N. Gregory Mankiw, and Austan Goolsbee.

The Economists Statement omitted key details of the Baker-Shultz plan, presumably in the interest of attracting the widest possible array of support. Not all signers, for instance, are eager to buttress the American government’s income security programs grouped together as the Social Security system. The second of four tenets of the plan promoted by CLS reads,

“All the proceeds from this carbon fee would be returned to the American people on an equal and quarterly basis via dividend checks, direct deposits or contributions to their individual retirement accounts. In the example above of a $40/ton carbon fee, a family of four would receive approximately $2,000 in carbon dividend payments in the first year. This amount would grow over time as the carbon fee rate increases, creating a positive feedback loop: the more the climate is protected, the greater the individual dividend payments to all Americans. The Social Security Administration should administer this program, with eligibility for dividends based on a valid social security number.’’

What about the promise that elimination of regulations that would be rendered superfluous by a rising carbon fee, so long as it was buttressed by the popularity of quarterly dividends? Many, though not all, of the Obama-era carbon dioxide regulations could be safely phased out, proponents promise, including an outright repeal of the Clean Power Plan. They continue:

“To build and sustain a bipartisan consensus for a regulatory simplification of this magnitude, however, the initial carbon fee rate should be set to significantly exceed the emissions reductions of all Obama-era climate regulations, and the carbon fee should increase from year to year.’’

So how much would it cost the ordinary consumer of gasoline, electricity, and gas or oil heat? Alas, that is a matter for experts, well beyond EP’s capability to determine, except by reference, in this or any other column. That first-year estimate of $40 a ton for the cost of carbon emissions is deliberately low – an increase in the price of a gallon of gas measured in dimes rather than dollars. It would certainly steadily rise.

But no plan of experts goes beyond the op-ed pages without the backing of a candidate. The putative candidate who holds the strongest views on the threat posed by global warming is Michael Bloomberg, financial data entrepreneur and former mayor of New York.

It’s no accident that Bloomberg chose last week to blast Trump in the most scathing terms. Bloomberg’s candidacy as a Democrat is still undeclared. Conventional wisdom is that he is too old, too centrist, and too short (he is 5’8’’ tall.) On the other hand, he is very rich and thoroughly tested by his three successful terms as mayor. An announcement is expected next month.

Meanwhile, the field of Democratic presidential candidates is fragmented, the Republican Party is fractured, and it seems (to me, at least) more likely than ever that Trump won’t run again, because, seeing he cannot hope to win, he will prefer to cut his losses.

The logic of punishment in very powerful. The newspapers can be expected to devote major resources to the Trump presidency until its bitter end. There is, however, a question of balance. The carbon dividend story has yet to break into the pages of the major newspapers, much less onto their front pages.

The stakes are high. Were it adopted, even after a quadrennial loss or two, the carbon dividend plan would at least vault America back into a position of global leadership in the battle against global warming, even if it weren’t enough to stave off the worst of the peril. (There is geo-engineering for that.) Granted, journalism is what journalists do. But what’s the bigger story here, Trump or the fate of the Earth?

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I asserted last week that Sir James Mirrlees had failed to join his fellow laureates in their statement on carbon dividends. He had a good excuse. Mirrlees died last August, at 82. John Kay gave him this first-rate send-off in the Financial Times. Richard Blundell and Ian Preston provided a lucid account in Vox EU of Mirrlees’ penetrating ideas. Presumably Jean Tirole and Christopher Pissarides were not consulted because they are not US citizens.

Had I been sharper, I might have mentioned New York Times columnist Paul Krugman’s New Year’s Eve explanation of his doubts about his fellow-laureates’ sentiments.. A revenue-neutral carbon tax high enough to make a difference is, he writes, “a fantasy at best, a fossil-fuel-industry ploy to avoid major action at worst.”

David Warsh, a veteran columnist and an economic historian, is proprietor of economicprincipals.com, where this column first appeared.