1. Pricing carbon emissions to fight climate change
Jana Gastellum
Program Director – Climate
Oregon Environmental Council
John Perona
Professor, PSU and OHSU
Citizen lobbyist, CCL

2. Tonight’s seminar Carbon pricing programs 101 (JG)
Emissions trading systems (JG)
OR state policies and governance (JG)
CCL’s fee & dividend pricing proposal (JP)
Combining federal and state policy (JP)

3. Last seminar (Wednesday May 23)
Climate and environmental justice; PJET
Guest speaker: Sam Baraso,
Sr. policy analyst, Multnomah Cty.
office of sustainability

4. Economic cause of climate change
Carbon emissions are embedded in our lifestyle
Actions producing emissions now provide free benefits
Costs of emissions are (1) globally distributed and
(2) not evident to us when we act
Even when made aware, most people/firms
won’t voluntarily pay these costs
A mandatory price on carbon emissions
internalizes the costs and provides incentive
for equivalent actions with lower emissions

5. C Emissions =
(1) Population x
(2) GDP/capita x
(3) C emissions/GDP
Kaya identity: If any of the three terms drops to
zero (or near-zero), then the product of the three terms
also approaches zero!
GDP/capita can’t get near zero without economic collapse
Lower C emissions/GDP: need incentive (and technology)

7. CCL’s Carbon Fee and Dividend Policy An important first step1
Place a fee on fossil fuels at the source (mine, well or port). 2
Return all of the revenue to households equally.
Our solution is called Carbon Fee and Dividend.
We believe Carbon Fee and Dividend makes fossil fuels accountable for their costs in the clearest, fairest and most transparent way. It’s what economists and climate scientists alike have argued is the best first step we can take.
It’s has three parts; we call it the three-legged stool.
A fee’s placed on fossil fuels at the source (well, mine, port of entry). This fee starts low and increases steadily each year.
All of the money collected is held in a trust fund and returned to American households monthly, on an equal basis. Under this plan about 2/3 of all households would break even or receive more in their dividend checks than they would pay in higher prices due to the fee, thereby protecting the poor and middle class from higher prices.
The final leg of the stool is a border tariff adjustment on goods imported from or exported to countries without an equivalent price on carbon. This adjustment would both discourage businesses from relocating to where they can emit more CO2 and encourage other nations to adopt an equivalent price on carbon.
This approach rewards producers, consumers, and other nations if they emit fewer greenhouse gasses, which, if we remember from earlier in the presentation, is the goal.
A border adjustment on goods imported from or exported to countries without an
equivalent price on carbon. 3

8. CCL’s legislative proposal
$15/ton CO2 equivalent fee in first year
Fee increases by $10/ton every year
Fee is applied to all GHG’s generated
by production and burning of fossil fuels AND
to manufacturers of HFCs/SF6 etc.
Fee increases continue until emissions
are reduced to 10% of 1990 level
Should reduce emissions enough
to stay below 2°C temperature rise

9. CCL’s proposal: A revenue-neutral fee & dividend program
Revenue neutral: No change in the amount of revenue
coming into the government
[would also apply to offsetting tax cuts]
Tax: generates revenue for the government
Fee: recovers cost for providing a service (fuel), from
the firm that benefits (eg Exxon)
Pigouvian tax: achieve economically most efficient
outcome by internalizing cost
[Price/ton CO2 matches incremental damage from the
emission of that additional ton]

10. Market response: higher prices for oil, coal, gas
and for climate-impacting refrigerants

11. Petroleum-based products are not taxed
Rebate is provided for
the fraction of fossil
fuels (mainly oil) that
is incorporated into
consumer products
and not burned.
Fossil fuels used in
the production of
these goods are taxed

12. Collecting the fee: at the source of the fuel
-sources: mine, well, or point of entry into US
-fee is collected at the first point of sale
[example: electric utility purchases coal from a mining
company; utility pays fee to the Treasury Dept]
Some practical considerations:
-assess the fee at the petroleum refinery, not the wellhead
-assess the fee at ~500 natural gas processing plants
-assess the fee on the coal producing firms
Fee is proportional to the carbon content
of the fossil fuel (less for natural gas, more for coal)
Other existing excise taxes provide models

13. Collecting the fee: why upstream?
-sources: mine, well, or point of entry into US
-fee is collected at the first point of sale
Simplicity – collection is from a relatively small number
of firms
Possibility of carbon price for fossil fuel exports:
US Constitution Export Clause – prohibits domestic
taxes from being applied to exported goods BUT
“severance fees” are an exception
[Severance fees can only be applied upstream]

14. What CCL’s policy does not address
-Methane leakage from pipeline transport
-CO2 or other GHG emissions from non-fossil
fuel sources (eg, cement manufacturing)
-Downstream generation of high CO2-equivalent
GHG’s after the initial fee is paid:
Example: fertilizer manufacturing from natural gas
eventually generates a large amount of N2O.
Fee & Dividend – the best first step.
NOT the only thing we need to do…

15. CO2 emissions from cement manufacturing

16. What CCL’s policy does not address
-Methane leakage from pipeline transport
-CO2 or other GHG emissions from non-fossil
fuel sources (eg, cement manufacturing)
-Downstream generation of high CO2-equivalent
GHG’s after the initial fee is paid:
Example: fertilizer manufacturing from natural gas
eventually generates a large amount of N2O.
Fee & Dividend – the best first step.
NOT the only thing we need to do…

17. Carbon pollution from fertilizer production
N2O
emissions
from NH3
Ammonia
(fertilizer)
Where does the energy-rich H2 come from?
CH4 + 2 H2O  4 H2 + CO2
(hydrogen gas from methane reforming)
CH4 Drilling  Processing  Sale to downstream users
CCL’s fee is imposed at the processing step

19. Carbon Fee and Dividend An important first step1
Place a fee on fossil fuels
at the source (mine, well or port). 2
Return all revenue (minus
administrative costs) to households.
Our solution is called Carbon Fee and Dividend.
We believe Carbon Fee and Dividend makes fossil fuels accountable for their costs in the clearest, fairest and most transparent way. It’s what economists and climate scientists alike have argued is the best first step we can take.
It’s has three parts; we call it the three-legged stool.
A fee’s placed on fossil fuels at the source (well, mine, port of entry). This fee starts low and increases steadily each year.
All of the money collected is held in a trust fund and returned to American households monthly, on an equal basis. Under this plan about 2/3 of all households would break even or receive more in their dividend checks than they would pay in higher prices due to the fee, thereby protecting the poor and middle class from higher prices.
The final leg of the stool is a border tariff adjustment on goods imported from or exported to countries without an equivalent price on carbon. This adjustment would both discourage businesses from relocating to where they can emit more CO2 and encourage other nations to adopt an equivalent price on carbon.
This approach rewards producers, consumers, and other nations if they emit fewer greenhouse gasses, which, if we remember from earlier in the presentation, is the goal.
A border adjustment on goods imported from or exported to countries without an
equivalent price on carbon. 3

20. Household Dividend HOUSEHOLDS IMPACT STUDY – 1 year (K. UMMEL, 2016)
$644/year/household*
*After tax average over all US households
[Average net benefit after costs]
All households have higher costs
Costs are higher for higher-income
families because they consume more
carbon-intensive products
“Static” model of
CCL’s policy

21. CCL’s dividend return benefits low-income HHs

22. Breaking down costs and dividend return
$$$ Higher costs
Higher income
Location (zip code)
House vs apartment
More cars
Home heating source
Greater expenses for:
-home heating
-electricity
-gasoline
$$$ Higher dividend
after taxes
Lower income
More adults
More children (up to 2)
CCL’s Carbon Calculator – estimate dividend and costs
$$$ Higher costs
Higher income
Location (zip code)
House vs apartment
More cars
Home heating source
Greater expenses for:
-home heating
-electricity
-gasoline
$$$ Higher costs
Higher income
Location (zip code)
House vs apartment
More cars
Home heating source
Greater expenses for:
-home heating
-electricity
-gasoline

23. How CCL’s dividend can reach all low-income Americans
-provide a refundable tax credit for workers, or use
existing tax information plus an additional form
as the basis for monthly dividend checks
-provide a supplement to existing federal payments
for retirees, the disabled, and veterans
-use the electronic benefit transfer (EBT) payment
system that provides food stamp benefits

24. CCL’s nonpartisan approach
Pleases conservatives
revenue neutral plan
does not grow government
rewards business innovation
Pleases progressives
dividend return to households
greater benefits to
lower income households

26. Carbon Fee and Dividend
The best first step 1
Place a fee on fossil fuels at the source (mine, well or port). 2
Return all of the revenue to households equally.
Our solution is called Carbon Fee and Dividend.
We believe Carbon Fee and Dividend makes fossil fuels accountable for their costs in the clearest, fairest and most transparent way. It’s what economists and climate scientists alike have argued is the best first step we can take.
It’s has three parts; we call it the three-legged stool.
A fee’s placed on fossil fuels at the source (well, mine, port of entry). This fee starts low and increases steadily each year.
All of the money collected is held in a trust fund and returned to American households monthly, on an equal basis. Under this plan about 2/3 of all households would break even or receive more in their dividend checks than they would pay in higher prices due to the fee, thereby protecting the poor and middle class from higher prices.
The final leg of the stool is a border tariff adjustment on goods imported from or exported to countries without an equivalent price on carbon. This adjustment would both discourage businesses from relocating to where they can emit more CO2 and encourage other nations to adopt an equivalent price on carbon.
This approach rewards producers, consumers, and other nations if they emit fewer greenhouse gasses, which, if we remember from earlier in the presentation, is the goal.
A border adjustment on goods imported from or exported to countries without an
equivalent price on carbon. 3

27. Border adjustments Imports – Impose a tariff at the border,
on all imports from countries
that do not price carbon
Exports – Provide a rebate to US manufacturers
so they can sell abroad at
competitive prices in countries
with no carbon fee
This may cause an international domino effect…
(Ted Halstead, Climate Leadership Council, TED talk)

29. What are the broader benefits
of Carbon Fee & Dividend (CF&D)?

30. National/regional economic modeling (REMI)
Initial: $10/Mt CO2
Increase: $10/Mt CO2/yr
100% dividend return
Border adjustment
Emissions
Economy (jobs; GDP)
In 2014, Regional Economic Models, Inc. (REMI) released a national and regional study of Carbon Fee and Dividend. The report detailed the projected impacts of a steadily rising fee and dividend (versus no fee and dividend) on:
Emissions
Jobs and GDP
Health
Household income
The report concluded that there is no economic argument against Carbon Fee and Dividend. It reduces emissions quickly, grows GDP, increases jobs, and saves lives.
Health
Incomes

31. Carbon emissions reductions (REMI)
33%
After 10 years
52%
After 20 years

32. Jobs created (REMI study)
Under Carbon Fee and 100% Dividend Return
After 10 years
2.1M New Jobs
After 20 years
2.8M New Jobs

33. Saved premature deaths (REMI study)
Under Carbon Fee and Dividend
90,000 lives
Over 10 yr
230,000 lives
Over 20 yr
We know that when you burn fossil fuels you also release other toxic substances that contribute to more air pollution, which shortens peoples’ lives. So, reducing emissions saves lives by preventing premature deaths associated with asthma and respiratory disease.
13,000 premature deaths are prevented per year after ten years of carbon fee and dividend.
227,000 premature deaths prevented in 20 years.

34. CF&D together with state cap & trade?
Possible approaches:
I. Preemption
II. Stacking
III. Integration

35. CCL criteria to support state cap & trade
Designed to reduce CO2 emissions
beyond existing approaches
Protect low income households
from price increases
Be politically viable for the state
Harmonize well with CF&D at the national level