Dividends or Shares?

Once emissions are capped, and the decision has been made to allocate the value of the allowances to the public, the next step is deciding the best way to accomplish this. Here are two approaches to consumer compensation:Dividends and Shares.

Dividends: The government sells (auctions) the rights to the highest bidder, then uses the proceeds to provide cash dividends to consumers on a per capita basis.

Shares: The government distributes emissions permits (shares) directly to each consumer. Consumers cash the share at a bank or brokerage, or through an online portal. The bank or broker sells the share to the upstream regulated fossil fuel importers and producers. The upstream companies are required to turn in permits equivalent to their emissions for that year.

Similarities and overlaps of Dividends and Shares:

Both Dividends and Shares:
· compensate consumers for higher fuel or energy prices

· return windfalls to people, not polluters.
· help low-income people, who typically emit less carbon.
· are based on a per capita framework that can be easily explained when other states create similar system

In both systems, carbon conservers come out ahead, while carbon guzzlers pay more. As the cap declines fewer permits (or shares) are allocated each year, but the scarcity could cause each dividend or share's to become more valuable. As the price of CO2 rises, the value of the dividend or Carbon Share would rise. Because consumers are receiving the scarcity rents from the increased prices of fossil fuels, consumers may continue to provide popular support for further emission reductions.

Either a per capita rebate, dividend, or share would help low-income households (who typically use less fossil fuel) more. Distributing 'consumer dividends' or 'carbon shares' can reduce the impact of higher fuel prices on households.


Dividends: With dividends, the government auctions all permits under the cap and provides a cash dividend on a per capita basis to consumers. The dividend could be disbursed electronically, wired to your bank account, put on a debit card, or issued the "old fashioned way" through a check that looks something like this:

New - Print your own dividend (pdf)

Carbon Share: The State distributes a carbon share to each consumer. Consumers cash the share at a bank or brokerage or online.The bank or broker sells the share to carbon importers and producers on the open market. The Share could be issued similar to a stock certificate, or it could be put on a debit card electronically. Here is a design:

The main difference between Dividends and Carbon Share is that the shares are denominated in CO2, and cashed in banks similar to exchanging foreign currency.  Companies buy the permit on a private market, providing an alternative to a government-run auction.  

Depending on how the Carbon Share system is set up, the Share could be sold through limited exchanges with licensed brokers, or through online transactions such as eBay, Amazon, etc. Carbon Share utilizes a private exchange, but the end result is equivalent to an auction: companies must purchase the permits, and the revenues are used for public goods or citizen compensation. 

Theoretically, Carbon Share could entail higher transaction costs than the dividend. This is because the State auctions allowances centrally, but regulated companies would need to buy Shares from millions of individuals. One potential answer is for aggregators to purchase Shares from people and sell them in bulk to companies. Banks and brokers could serve this function, or others (e.g. Google, WalMart or other businesses).

Another potential downside of the Share is that many people do not have brokers, and may not understand how to sell their Carbon Share, especially in the early years of the program.

For these reasons, it may make sense to make Carbon Share an opt-in choice when it is first introduced.

For example, Consumers could opt-in to the Share through a check box on their tax form that asks how they would like to receive their climate allocation: dividend, rebate, or share.


The Dividend and the Share can co-exist. In California, the Dividend and Tax Rebate could be administered by the California Franchise Tax Board, in coordination with the California Air Resources Board. The Share, on the other hand, is distributed by the State (or a Trust chartered by the State to act on its behalf), and must be returned to the State by the upstream fossil fuel companies which use the Share as permits. The Share provides financially savvy investors an avenue to participate in the carbon market.

Although the check box on the tax form seems to be the best solution to include both dividends and shares into a consumer compensation program, there are other possibilities for consumer compensation as well:

Expanding the Earned Income Tax Credit: Some economists believe that reducing the distortions of regressive tax system is the most efficient way to compensate low-income people. .
An earmarked rebate: The rebate could be in the form of a coupon: similar to “climate-friendly food stamps” which can only be used to purchase Energy Star appliances, transit passes, hybrid vehicles, etc. Some groups believe that the cash dividend would help low-income people, but that earmarking the rebate for high-income people would ensure that the rebate us used in a low-emissions manner. Means testing the rebate is a similar approach.
Set-asides for specific communities: This is similar to traditional poverty-alleviation programs
where funds are sent to specific communities to fund programs.

You can read more about these in the FAQs or on the Resources and Reports page.

Want to get involved? Find out what is happening in your area, or how you can get involved.




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