Cap and trade vs cap and dividend

Unlike the more familiar cap and trade system, which taxes emissions of individual businesses and uses the money for research in alternatives (or some other helpful cause), the newer 'cap and dividend' approach taxes the suppliers of the fossil fuels. They then use this money to pay dividends to American citizens.

The idea for the dividends approach is that, while any cap system will pass the expense on to the consumer, the dividends paid out should ease the pain of higher fuel prices. They claim that those who are frugal with their energy use will come out ahead, while those who continue to waste will end up losing more than the dividends pay back.

Thoughts?

If we cap production of an industry and thus drive up prices so that those who own the industries get richer, then the industries  will pay a dividend not to the citizens and taxpayers but to just those who own the company stock, unless we also apply heavy taxes to redistribute those excess profits.

It does seem sound to give the producers a large gift by restricting their production, and then tax the gift back from them, as for instance restricting the total amount of fossil fuel produced and then adding an at source tax that would recover most or all of the extra profits.

Now this thinking is mostly about those who extract fossil fuels within the country they  market the fossil fuel.  But it could also be applied in a country that imports most of its fossil fuel. If this principle be applied to say Saudi Arabia, the restriction of production is no change. And so we just get an increase in taxes that go to the Saudi government. The net effect is that this money stays there to allow them to consume more of their oil.

yes, its a step in the right direction. lovely clear discription, thanks for link.

i am sooo disenchanted with the cap'n'trade so far here in europe, it has been a joke. i would go further and ask for a universal per capita carbon credit, on the 'contraction and convergence' lines, but it unrealistic to expect the western gov.s to go for it, they will squeal about china/india getting all the goodies through being irrresponsible breeders or some such.

"Cap and dividend starts with a descending economy-wide cap on carbon suppliers rather than carbon emitters."

That's an interesting concept.  However, the amount of emissions created depends on the use of the fossil fuel.  For example, burning oil has a much larger impact on global warming than converting it into plastics.  So why should the plastics manufacturer pay for the carbon when they're basically sequestering it?

Good point Dana, I doubt even most of the people promoting this idea have taken that into consideration. I suppose that since oil is the only fuel that really has this problem, you could just sort of 'average out' the cap on oil supplies based somewhere between emissions from plastic and emissions from burning.

Yeah I guess there's not much you can do with natural gas or coal other than burn them.  Oil has a bunch of different uses though.  The cap and dividend concept just seems really inadequate for dealing with oil.

And then for coal, with a cap and dividend system, where's the incentive for carbon capture and storage?  I guess you're basically just disincentivising the use of coal altogether, which I don't have a problem with, but there would no longer be any motivation to retrofit existing coal plants with carbon capture technology.

In theory I like the cap and dividend system, but I think cap and trade is more practical.

Hm. Just playing around with ideas here, but what if only the coal sold to normal utilities were capped, while coal sold to utilities that have sequestration technologies would be unregulated (or even subsidized with part of the 'dividend' payouts)?

Suppliers would then be able to sell to sequestration plants at a cheaper price, which would mean utility companies would have an incentive to build such plants (provided they can keep the extra costs of operation under the difference in cost between two kinds of coal.)

or tax at source, then claim back relief for sequestration or non emitting use? that wouldnt be much more complicated than many current tax systems (e.g. v.a.t.) and could include woodsy and soily type sequestration too.

Yeah that could work, but it could get a little tricky (i.e. does making plastics count as sequestration?).  I still think it would just be simpler to do cap and trade.  In the end that's going to decrease fossil fuel demand which will impact the suppliers anyway.

If plastics are eventually converted to CO2 via any process, it could be a pyrolitc process that returns the molecules back to petroleum distilates that will be burned, it could be by direct incineration, or biodegredation, we should not consider that plastic as being sequestered carbon.

Next, we should not consider sequestration per se as the objective. When we sequester CO2 on a permanent basis we are losing the oxygen from the atmosphere. Photosynthesis would give us back the oxygen from the  CO2. If we burn up all the carbon on earth and sequester the CO2, we wil have removed most of our oxygen. Recall that earth has already diposed of by far the largest part of its oxygen when its silicates, metal oxides, and water were formed.

We likely have enough hydrocarbons and carbons that we could extract and burn to use up at least a quarter of our available oxygen. Volcanic combustions could use up more. We have no good handle on that, but  burning hot metal does consume a lot of oxygen.

So our objective shoudl be to sequester carbon that has already released its oxygen. Short term sequestration, as in wood of a tree, plant matter in the soil, it delays ultimate release of the CO2. What about later, when it comes back into the air?

We can capture some of it again in plants. We can use the wood or plant matter to produce charcoal as a soil ammendment which further delays its return as CO2 and encourages soil to grow plants that recapture CO2.

When we Sequester CO2 in an oil well, some of the CO2 will come back out with the oil, even though a lot will remain deep in the earth, with its oxygen still chemically bound. We had to burn more fuel to create energy used to compress the CO2 to a liquid. Based on Australian measurement that is about 1/3 of the gross energy and half of the net energy.  So, we are using up the natural resource  50% faster. Now the Australian process dumps the heat of compression into the ocean and it may be possible to recover a large part of that heat to power compression so that we might be able to improve our efficiency by a factor of 2 or even 3.

Cap and dividend by its nature is a gift to industries capped. I do not mean to the individual producer, but the industry as a whole. Even when our cap is on consumption of energy, and that puts at advantage any more efficient user of energy or particularly an industry that has fewer emissions because of their energy source, the overall effect is to force the industry to limit its output and thus reduce competition to sell. An industry that does nothing whatsoever to  improve on emissions/product volume, when capped will have to reduce product volume. But miraculously that will raise selling prices, improve profit levels.

The single most effective way to reduce emissions globally is to reduce the amount of fossil fuel that can be extracted globally.  This need not be done with respect to usage based on its emissions. If we reduce the extraction of fossil fuels by 1% per month, in 5 years we will have cut our total emissions in half.

This would not take into account sequestering in  earth or deep in the seas. We could conceivably increase that to 70% with those sequestering efforts.

However, if we try to force emissions down while we continue to permit extraction of fossil fuels to continue unrestricted, its price will drop to maintain consumpiton of those fossil fuels. Note how sharply oil prices have fallen because consumption has dropped just below extraction levels. And any cap on emissions will force consumption down, prices down, and emissions right back up.