How a carbon permit system could work

How would a “climate rebate” system work?
Under one scenario offered by Center on Budget and Policy Priorities, the U.S. Department of Energy “would set the size of the rebate each year, based on the impact of the emissions cap on consumers’ purchasing power.”

Married couples earning $70,000 or less and single filers earning $30,000 or less would receive a full rebate of their increased energy costs.

Married couples earning more than $70,000 but less than $110,000 and single filers earning between $30,000 and $50,000 would receive a partial rebate.

People above those income levels would get no rebate, on the theory that they could afford the increased energy costs.

What other approaches have been suggested for spending the new revenue?
An idea that seems to be gaining momentum is one offered by a leading House Democrat, Rep. Chris Van Hollen of Maryland, who also is assistant to House Speaker Nancy Pelosi. This week Van Hollen introduced a bill that would return 90 percent of the proceeds of the emissions permit auctions to consumers — a concept called “cap and dividend.”

“The strength of cap and dividend lies in its simplicity, transparency and durability,” he said in a letter to fellow House members recruiting their support for his bill.

Rather than monitoring factory smokestacks and other emissions sources, Van Hollen’s bill would put the burden on “the first sellers” of fossil fuels. 

For example, a coal company would report each year how much coal it sold in the United States and then would be required to purchase a carbon permit for each metric ton of carbon emitted by the coal.

Isn’t it likely that Congress would use the new revenue in ways it chooses, rather than simply sending it out as dividend checks to consumers?
“It’s tempting for Congress to spend the carbon revenue, but if they did so instead of returning that money to consumers it would amount to a vast reduction of consumer purchasing power, which would be a disastrous thing to do in a recession,” said Peter Barnes, an environmental activist who testified last September to the House Ways and Means Committee in support of the cap-and-dividend concept.

Would passage of a federal carbon emissions law pre-empt already existing state carbon trading schemes?
Not necessarily, said Danish. “That's a political decision,” he said.

But, he said, “There is not a strong environmental rationale for continuing those (state) programs if a federal cap-and-trade program comes into place.” 

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