Frequently Asked Questions and Background

Note: We are currently adding new questions and answers about Carbon Share.
If you have a question, you may send it to us here.

Categories of questions:

Background - About Climate Change

About Market Design How Carbon Share works The effect on the economy Implementing Carbon Share
Voluntary and Mandatory measures Auctions and the ETS Dividends? -Local -in California -Elsewhere
Regulatory versus Market mechanisms The price of carbon Receiving the share
Cashing the share
The government
The price of a Carbon Share Who else is talking about this?
The Commons Carbon Tax? Spending revenues Benefits of Carbon Share What you can do

About Climate Change

Carbon dioxide (CO2), the primary greenhouse gas (GHG), is produced from the burning of fossil fuel. Every
time we drive a car, use electricity from coal-fired power plants, or heat our homes with oil or natural gas, we
release carbon dioxide and other heattrapping gases into the air. Through daily energy-using activities, we are increasing the amount of CO2 in the atmosphere and magnifying the natural greenhouse effect. The net effect of this increased atmospheric concentration of CO2 and other GHGs is to trap more of the sun’s heat, causing the earth’s average temperature to rise— the phenomenon is known as global warming.

The Earth’s average temperature has increased more than 1°F over the last 100 years. Scientists have
measured CO2 levels in parts per mission (ppm) between 1850 and today, CO2 levels in the atmosphere have increased from 280 parts per million to about 387 and it is rising at about 1.5ppm every year. Scientists warn that that there is a threshold of 450 ppm correlated to a 2°F temperature change worldwide beyond which humans would face an unacceptable risk of irreversible damage to the world’s climate systems, sea level rise, increased extreme weather events, species extinctions, and more. Others believe the "safe" level for CO2 is 350 ppm. For more information on the science of climate change, consult the Intergovernmental Panel on Climate Change (IPCC) reports, written by over 1,250 authors and 2,500 scientific experts from more than 130 countries. There are plenty of other website which discuss the science of climate change in more detail, including here, here, here and here.

What if I’m talking to someone who doesn’t “believe” in global warming?

The best approach is not to try to convince them that you are right, or that they are wrong. The best approach is to shift the discussion to one of these topics, which will build common ground and lead to mutual solutions:
• Childhood asthma is increasing due to increased air pollution, isn’t that terrible?
• Too much traffic, wouldn’t it be better with fewer people on the road?
• Dependence on foreign oil threatens our national security, what are some domestic sources of energy?
• What are the economic consequences if other countries such as China invest in renewable energy manufacturing and R&D and we do not?

Voluntary and Mandatory measures

Many companies and individuals are taking voluntary action on climate change by investing in energy efficiency, paying extra for renewable energy, and hundreds of other actions.

Voluntary approaches include:
Energy efficiency (lightbulbs) and conservation
Driving less, buying a more fuel efficient car
Reduce, Reuse, Recycle
Eat lower on the food chain, closer to home
For more ideas, check: www.stopglobalwarming.org.

Voluntary actions are great, but there are several problems with relying only on voluntary action. First, you may feel good buying a Prius, but your neighbor may buy a Hummer and negate your actions. Second, businesses (or countries) that act first could find themselves at a competitive disadvantage if others are able to undercut on price, etc. Third, the scientific imperative means we all need to take action immediately, and we don't have time to wait for enough people to take voluntary action.

A mandatory framework for action puts everyone on a level playing field. But soon, climate protection won’t just be voluntary any more. It will be mandatory. With the adoption of California’s Global Warming Solutions Act, California has taken the first step toward mandatory approaches.

About Markets and regulations and price signal

Regulatory approaches are well-known and supported by tne environmental community. A government
agency sets targets, and penalties for noncompliance. Regulatory approaches are the backbone of climate policy. Market approaches, on the other hand, are less understood, and more controversial.

Regulatory approaches: Efficiency standards, Technology promotion, Prohibit certain behavior

Market- based approaches set a price for carbon, which encourages the economy to use less of it as it
becomes more expensive.

Market approaches: Carbon Tax, and Cap and Trade

Why do we need a carbon market? Why not just use regulations to force the companies to reduce emissions?

State regulation can set standards, promote certain technologies, or prohibit certain behavior. If the State could achieve its reduction goal through regulations alone, then there would be no need for a market. But most people believe a market will be necessary. If there is going to be a carbon market, it is in everyone’s best interest to have a market that values the environment and the public trust.

A well-designed carbon market can provide incentives throughout the economy for behavior that reduces carbon. A market can accomplish some things that regulations can’t. For example, when the State mandated that cars emit fewer greenhouse gases (AB1493), Detroit sued. But, when gasoline prices went up, and consumers responded by buying high-mileage cars, Detroit had no choice but to make fuel efficient cars. A change in the price of gasoline accomplished what regulations could not.

Carbon Share supporters believe that carbon market can be designed to provide the right price signals to reduce greenhouse gases, while recycling revenue to people. Governments can create a mandatory cap on the emissions that cause climate change, and return the value of permits under the cap back to households.

About cap and trade:

• Carbon cap and trade is a market-based way for a state to combat climate change.
• The state ‘caps’ total CO2 emissions and issues that number of emission permits annually.
• The number declines from year to year until a safe level of emissions is reached.
• Companies must acquire permits in order to emit CO2 or bring carbon into the state.
• Companies can buy and sell permits.

Capping carbon creates economic value.
• Without a cap, the value of carbon = 0.
• With a cap, the value of carbon > 0.
• Because of the law of scarcity, as the supply of carbon permits decreases, their economic value rises.
• When valuable new property rights are created, who gets those rights is a political issue.

There is no single thing called "Cap and Trade." Some cap and trade systems give away permits to wealthy corporations, while others charge polluters for permits. The details of how the system is structured are the key to who supports the system and who opposes it. A main concern is who gets the emission rights, and how the revenues (or allowance value) is spent.

What about the SO2 market and the ETS?

Many proponents of a cap and trade system point to the EPA’s Acid Rain program (SO2) which used cap and trade. The South Coast Air District used a similar model for their RECLAIM program, and later in 2005, the European Emissions Trading System (ETS) followed the same design principles.

Unfortunately, there are flaws in the all three systems. The SO2 market acheived reductions, but not necessarily faster or cheaper than a regulatory system would have achieved it. RECLAIM inflated baselines and, allowed too many imported credits and exemptions to the cap.1 And the ETS’s over-allocation of permits to selected companies led to windfall profits for those companies, and few emission reductions. All three systems used a free (grandfathered) allocation. Carbon Share's goal is to avoid those problems, and to allow for a more open market that returns revenues to people.

What about offsets?

Offsets are very different from permits. Permits represent tons of emissions under the cap. A reduction in the quantity of permits would require reduced emissions under the cap. Offsets are a creation of entities which reduce emissions outside of the cap. Many offsets companies would like offsets to substitute for permits, which would make offsets as valuable as permits, and theoretically reduce the cost of emission reductions. The problem is that offsets lack performance standards. Many offsets created under the United Nations Clean Development Mechanism, part of the Kyoto Protocol, lacked accountability. Additionality is an issue. The forestry sector can be problematic. What happens when trees planted burn in a forest fire? Are offsets refunded?

In this chart below, as an example, the red section shows emissions increasing until 2006, when a law is passed. Then permits decrease back to 1990 levels by 2020. The green area shows what business as usual would have been without an emission reduction law. An offset would be a reduction from business as usual in the green area. But the required reductions are mandated by the permits in the red area.

Carbon Share focuses on the mandatory permit area (shown in red), not the voluntary offset area (shown in green). For maximum reductions under the cap, offsets should be limited.

•What are the Principles behind Carbon Share?

• The sky belongs to all of us. The atmosphere is a commons, we all breathe the same air.

• If the atmosphere has economic value, that value belongs to everyone, equally.

• Industry should pay to use the atmosphere, and revenues for be used to reduce emissions and compensate citizens for its use.

How Carbon Share Works:

Carbon Share can work alongside an auction-dividend capped system. In an auction, permits are sold, and revenues are returned to consumers as a cash dividend. Consumers could opt-in to receive the share instead, and deposit the share in a brokerage account.

Who is eligible to receive a carbon share?

Citizens over age 18 who have resided in the jurisdiction (i.e. state) for 1 year. (Alternative: Anyone with a Social Security card)

How do individuals receive the shares?

Distribution of dividends could be based on the Alaska Permanent Fund's distribution system. The State of Alaska distributes proceeds from leasing state land to oil companies by wiring the money directly to the individual's bank account, or by mailing a check. Another possibility is to have the share reside electronically on a debit card. When you do your state taxes, if you choose to receive the share, the State replenishes the card each year.

What if people forget to cash their share, or the share gets lost in the mail? Will the economy grind to a halt?

If many people retire their shares, the price of shares will rise, encouraging people to sell. In this sense, the problem is self-correcting.

Also, shares could have an expiration date for redemption, and the state may auction unreedemed shares after a certain waiting period. This is one way that Carbon Share and an auction can co-exist. Funds raised by the auction of unclaimed shares could pay for the administration of the Carbon Share disbursement and enforcement of the cap, and net proceeds could be set aside for energy efficiency programs, and other state programs that reduce greenhouse gas emissions and have a public goods component.

What options are there for cashing the share?

The typical places to cash a share could be banks and brokerages. The Alaska Permanent Fund wires disbursements directly to people's bank accounts. Other options could be the post office, check cashing businesses, online web auction portals such as Google or eBay, or other businesses formed specifically to collect shares for re-sale.

Do any banks or brokerages support Carbon Share?

We are looking into doing outreach to banks and the financial services industry. When we find those who support it, we will list them on this website. We assume the services provided would be a new source of profits for the industry. If you have contacts in the banking or financial services industry, please contact us.

Would all businesses need to purchase Carbon Shares in order to do business in California?

No. Only upstream businesses- the businesses which produce or import fossil fuels into the California economy would need to purchase Carbon Shares. Retailers such as gas stations would not need to purchase Carbon Shares. Consumers would not need to purchase Carbon Shares. By regulating at the point where fossil fuels enter the economy, there is no need to regulate further downstream in the economy, and there are fewer businesses to regulate.

Who is a carbon importer?

Any entity that brings burnable carbon (from underground, or biomass, or by pipeline, tanker, train or truck) into the state economy. Utilities are considered importers of the carbon content of the electricity they import from out-of-state.

What about companies that have taken early action to reduce emissions?

Under Carbon Share, historic corporate emitters receive no free shares, so early reducers are not disadvantaged. In fact, they benefit from their carbon efficiency by paying less for carbon-based fuels.
This differs from a grandfathered system where carbon shares are distributed free to historic corporate emitters, disadvantaging companies that previously reduced their pollution.

Which government agency would be in charge?

There are many options. For example, in California, the California Air Resources Board (CARB) will have some role in monitoring the carbon content of the fuel the producers and importers have sold during that year. Regional Air Districts may have play an enforcement role. Registering citizens to receive the shares could be tied to voter registration (if it is decided that shares should only go to citizens over age 18), the Franchise Tax Board (the California Income Tax database), or have an independent process. Additionally, a new semi-autonomous agency called the Sky Trust could coordinate the various functions of this program.

How will the system be enforced?

Carbon importers (there are just a few hundred within the state) will have to demonstrate annually to a state agency (the Climate Registry) that they have purchased sufficient shares to cover their carbon imports.

Will it cost the State money to administer Carbon Share?

A giveaway of emission rights to the fossil fuel industry would bring in no revenues to the state to pay for administration and enforcement of the cap, unless free permits were taxable, which is opposed by recipients of free allowances). By contrast, auctioning (selling) permits to industry would bring revenues which could be used for those purposes. The sale of the Share would also be taxable, bringing in revenues to the State.

Carbon Share could be implemented in combination with a state-run auction. The State would auction unclaimed emission rights. Funds raised by the auction would pay for administration of the Carbon Share disbursement and enforcement of the cap, and net proceeds could be set aside for energy efficiency programs, and other state programs that reduce greenhouse gas emissions and have a public goods component.

How does this relate to a Carbon Tax?

A carbon fee and a cap and auction system can co-exist.
A carbon tax (or fee) could be the price floor in a cap and trade (auctioned permit) system.

The carbon fee could be an early action measure taken by the California Air Resources Board. It would help them learn some of the administrative and economic issues around an economywide auction.

A price floor would reduce the price volatility on the low end of permit prices. If permit prices fall too low, businesses will hesitate to make long term investments in low-carbon technologies. A price floor from a fee, rising over time, will ensure that investments made now will reduce costs for businesses in the future. For the cap and trade system, permits must be auctioned, and the money recycled to consumers.

So the bad news for companies is that they will pay to pollute. The good news for them is that they will pass on the costs to consumers anyway. The bad news for consumers is that prices will rise. The good news is that revenues from permit auctions will be returned to them through rebates or dividends.

Is auctioning carbon permits to companies the same as a tax?

No. When the state sells or leases assets owned by the public to private companies, it is not a tax. The Federal Government's auction of the telecommunications broadcast spectrum is a license, not a property right.

Who sets the price of carbon?

No one. The price of carbon is set by the carbon market. The market is driven by the demand of carbon importers and the supply of carbon certificates. The price per ton of carbon could decrease if industry reduced emissions ahead of the cap. Or, it could increase if industry demand for entitlements exceeded supply. A price floor through a carbon fee provides a long-term price signal to encourage long term investments in low-emitting technologies.

What is likely to be the trend in carbon prices?

As the carbon budget (and hence the number of shares) declines from year to year, it is likely that the price of carbon will rise. Less pollution will yield more cash to residents. This creates a built-in incentive to reduce emissions over time.

Will fuel prices rise? What about the value of my Carbon Share?

The price of carbon-based fuels will rise under any cap-and-trade system. Under Carbon Share, these price increases will be offset by the cash residents receive from selling shares. Modest consumers of carbon-based energy will come out ahead. Only high energy users will pay more.

How are Shares calculated?

Here's one way how Shares may be calculated:

• The total amount of statewide carbon emissions under the cap is divided by the number of citizens to determine number of tons per share.

•Then, the tons per share is multiplied by price of carbon to give each share its value.

• Given the recent market price of carbon of $11.50/ton, each California consumer's share could be worth about $190.

Here are some projected numbers for California:

Example: 2010 (1) 2020
Statewide Net Co2 Emissions incl elect. Imports and minus sinks (MMTCO2E) 469.6 427(2)
CA adult population (projected) (3) 28,169,679 31,232,989
Tons CO2E divided by population over 18 16.67 13.34(4)
$ US per entitlement (at $11.50/ton CO2)(5) $191.70 $153.41(6)

Notes:
1) California's GHG reduction targets (Governor's Executive Order S-3-05: a reduction of GHG emissions to 2000 levels by 2010; a reduction of GHG emissions to 1990 levels by 2020; and a reduction of GHG emissions to 80% below 1990 levels by 2050. The 2020 target is part of AB32.
2) CA State GHG inventory, page 22 was 416.7 Million Metric Tons of Carbon Dioxide Equivalent emissions (MMTCO2E)
http://www.energy.ca.gov/2005publications/CEC-600-2005-025/CEC-600-2005-025.PDF
The ARB announced a new number on December 6, 2007: 427 MMT.
3) US Census: 1990, 2000 and projected numbers for 2010 and 2020, (Assuming 26% under 18, 74% over)
4) In the above example, the tonnage per share decreases over time since carbon in the economy decreases while population increases.
5) www.pointcarbon.com. Price of a ton of carbon on the European Trading System (ETS) on November 15, 2006.
6) If the price per ton goes up, then the Share might worth the same or more.

How will Carbon Share effect the state's economy?
Carbon Share is better for the state's economy than any other method of cutting carbon emissions. That's because it protects household purchasing power by distributing shares that can be redeemed for cash. Other plans drain the state's economy by giving carbon shares to corporate emitters, benefiting only their shareholders (many of whom live outside the state) while raising prices to consumers within the state.

Is Carbon Share the same as the UK proposal for personal carbon allowances (also called Domestic Tradable Quotas (DTQs))?

No. Personal carbon allowances and DTQs, which are being discussed in the UK and whose supporters include David Milliband, are completely downstream systems. Each consumer's carbon consumption is tracked and rationed by a credit card. The point of regulation is at the consumer level. By contrast, in Carbon Share, the point of regulation is upstream, at the fossil fuel importer and producer level. Consumer carbon levels are not explicitly rationed. There is only one consumer transaction involving carbon emissions permits per cycle: the selling of the share for cash to companies via banks.

Why not issue Carbon Share or dividend as a coupon which can only be redeemed for compact flourescent lightbulbs, hybrid cars, or Energy Star rated appliances? What if people spend their Dividend on
Hummers or vacations which increase emissions? Shouldn’t all revenues go toward reducing
emissions?

A short answer is that once a cap is in place, it doesn’t matter how people spend their money, because the cap means that the emissions target is still met.

Some argue that California law requires that revenues raised by a fee must be used to mitigate the problem the fee is meant to solve. Funds could not be diverted to other uses. It is unclear how this impacts a consumer rebate for increased fossil fuel prices. The increased price of fossil fuels will make inefficient products more expensive. Making the share only redeemable for certain products may decrease the political support for the rebate. (The same goes for substituting a tax rebate for a share redeemable for cash.) On the other hand, the share could be made redeemable for both cash and for transit passes or other public goods, and local government agencies could offer special deals to incentivize the use of the share this way.

Are dividends "wasted" on high income people? What if people spend their Dividend on Hummers or vacations which increase emissions? Shouldn’t all revenues go toward reducing emissions?

It is a common concern that people will just spend their dividend money on energy intensive goods.  The short (and unsatisfying) answer is it doesn’t matter how people spend their money because the enforcement of the cap ensures that the emissions target is still met. The long answer is a little better: with a carbon price the relative price of energy intensive goods will go up compared to low-energy goods, encouraging people to spend any surplus left from their dividend on low energy things.  If the dividend is set at the average energy user, then those above will spend more money than they get back and those below come out ahead.  If they came out ahead, that means their energy use is below average, and would be more likely to be low-income people.  Low income consumers will be more price sensitive than high income, so the only problem would be the low-energy, high-income people, who have “earned” their dividend/energy surplus through their existing lifestyle. 

Why would you want to shield consumers from price increases in fossil fuels? Isn't making fuel expensive the best way to change consumer behavior?

True, you don't want to overdo it and totally negate the price signal. However, the main reason to provide some consumer compensation is that an increase in the price of fuel is regressive, meaning that it impacts poor people more than rich people. Although fuel price increases will have positive environmental effects, we suggest social policy to make the impacts more fair. You also want a slowly increasing price signal, and to avoid price spikes, insecurity, causing a recession, and backlash. A per capita rebate, such as Carbon Share, would alleviate some, but not all, of the impact. High carbon emitters would still pay more. Also the rebate helps preserve short-term political support for the long-term emissions cap.

• Do you have any other recommendations for good Carbon Market design?

Yes. Here are 4 recommendations:

1) Regulate as far upstream as possible: The farthest upstream companies are fossil fuel producers and importers. Permits would be needed at the dock when an oil tanker unloads, or at the pipeline. It is the simplest way to address emissions from the transportation sector (California's largest source of emissions). Upstream can alleviate the mandatory reporting requirements for most businesses, while still producing a price signal throughout the economy. The upstream point of regulation may also protect consumers.

2) Auction 100% of the permits. New York, Vermont, and Massachusetts are auctioning 100%. An auction avoids the problem of overallocation seen in other giveaway systems like the ETS. Auctioning avoids lobbying for preferential treatment. Every carbon emitter is treated equally. Auctioning rewards early action, since early actors would need fewer permits.

3) Compensate citizens for disproportionate impacts by allocating a per capita dividend (Sky Trust) or Carbon Share. The per capita allocation benefits low-income consumers (who typically consume less fossil fuel). A per capita approach reinforces the fact that the Sky is a shared Commons.

4) A price floor will send a long term price signal to companies and reduce low-end permit price volatility. A carbon fee can act as a permit price floor.

Problematic market design includes low-quality offsets and free allocation to utilities and other polluters.  Additionally, accumulating permits may need to be limited in enviornmental justice communities in order to prevent "hotspots" from occurring near existing large facilities.  Finally, carbon taxes and fees may assist in providing a carbon price, but a cap is still needed to ensure that emissions actually do down. 

 

Benefits of Carbon Share:

· Reduces carbon emissions statewide

· Creates a genuine market for carbon emission permits

· Pays cash to every state resident

· Makes corporate emitters pay for their pollution

· Offsets higher energy prices residents will pay.

· Covers all carbon emissions, not just selected industries.

· Avoids windfall profits to corporate emitters .

· It is simple, fair and market-based.

· It makes it politically possible to reduce carbon emissions to the level required for climate stability.

 

Implementing Carbon Share

Who else is talking about Carbon Share, and other methods of consumer compensation?

Links to related organizations, resources, and news

What you can do


For more information about how Carbon Share works, click here.

 

 

 

 

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