Cap and dividend
Encyclopedia
Cap and Dividend is a market-based
trading system which retains the original capping method of cap and trade, but also includes compensation for energy consumers. This compensation
is to offset the cost of products produced by companies that raise prices to consumers
as a result of this policy
.
The process begins with some government or group in power setting carbon emission caps to a number of large companies that produce significant amount of carbon emissions. As a result of these companies buying carbon caps, their products will become increasingly expensive to consumers. With this process, the capped companies are permitted to go over the cap as long as they pay a dividend. The dividend in the cap-and-dividend system will be paid back to consumers as reward for consuming low amounts of carbon. The dividend payments will be derived from the cap sales for these carbon conscientious energy consumers.
is to reduce carbon emission rates to a point of nearly leveling. This is similar to the cap-and-trade system, with the main difference being energy consumers who reduce their own carbon emissions receive dividend payments from the original cap purchases. The addition of a dividend will affect everyone in the marketplace
, whereas cap-and-trade's intention is to affect everyone except consumers. The Healthy Climate Trust Fund is the agency in the U.S. government who are overseeing the cap-and-dividend policy. They will accomplish this by collecting and distributing the funds from the capping process.
For definitions on Cap-and-Trade, look here: Emissions trading
and such groups as On the Commons
, a network group which promotes environmental, community-related solutions.
(D-Md.) put a bill before Congress on April 1, 2009, pertaining to carbon reductions and including the cap and dividend system. The cosponsors of the bill are Rep Earl Blumenauer
[OR-3], Rep Lloyd Doggett
[TX-25], Rep Mike Thompson
[CA-1], Rep Lynn C. Woolsey [CA-6].
The goals of the Cap and Dividend Act of 2009 are as follows:
This bill would also create the Healthy Climate Trust Fund, the potential agency for managing and distributing dividend funds.
The status of the bill included a referral to House Ways and Means Committee on 4/1/2009, then a referral to House Energy and Commerce Committee also on 4/1/2009, and then on 4/2/2009 a referral to the United States House Energy Subcommittee on Energy and Environment. The bill is currently being reviewed by the United States House Energy Subcommittee on Energy and Environment.
. With a policy like this it will affect not only the major companies that will be taxed but also every household through a chain reaction of product price increases. There will be variations on how much of an impact this policy would have on different geographical areas based on population and how industrialized the area is.
There are several differences between cap and trade and cap and dividend that ultimately define each of them. A cap is placed on carbon emissions and green house gas (GHG) emissions in both policies. Based on the caps there are carbon emission permits that give the companies the ability to produce more carbon emissions then the cap would permit. These permits are auctioned off to different companies. In the cap and trade system only a set amount are auctioned off and the rest are given away for free. In the cap and dividend system all the permits are auctioned off. In both systems the cost of buying the permits will increase the price of the product made by the companies; oil, electric, and products that make carbon emissions. The thought process behind this is to dissuade the purchase of mass quantities of these products i.e. less carbon/GHG emissions. While the cap and trade system uses the high prices to control the amount of carbon emissions they do not provide a good incentive to limit carbon emission. Cap and dividend uses the dividends to reward the people that conserve the most. This will benefit the poor the most because of their living situations and this is found to be a problem with lots of people critiquing the policy.
Market economy
A market economy is an economy in which the prices of goods and services are determined in a free price system. This is often contrasted with a state-directed or planned economy. Market economies can range from hypothetically pure laissez-faire variants to an assortment of real-world mixed...
trading system which retains the original capping method of cap and trade, but also includes compensation for energy consumers. This compensation
Compensation
Compensation can refer to:*Financial compensation, various meanings*Compensation , various advantages a player has in exchange for a disadvantage*Compensation *Compensation , by Ralph Waldo Emerson...
is to offset the cost of products produced by companies that raise prices to consumers
Consumer
Consumer is a broad label for any individuals or households that use goods generated within the economy. The concept of a consumer occurs in different contexts, so that the usage and significance of the term may vary.-Economics and marketing:...
as a result of this policy
Policy
A policy is typically described as a principle or rule to guide decisions and achieve rational outcome. The term is not normally used to denote what is actually done, this is normally referred to as either procedure or protocol...
.
The process begins with some government or group in power setting carbon emission caps to a number of large companies that produce significant amount of carbon emissions. As a result of these companies buying carbon caps, their products will become increasingly expensive to consumers. With this process, the capped companies are permitted to go over the cap as long as they pay a dividend. The dividend in the cap-and-dividend system will be paid back to consumers as reward for consuming low amounts of carbon. The dividend payments will be derived from the cap sales for these carbon conscientious energy consumers.
Overview
The goal of this type of pseudo-carbon taxCarbon tax
A carbon tax is an environmental tax levied on the carbon content of fuels. It is a form of carbon pricing. Carbon is present in every hydrocarbon fuel and is released as carbon dioxide when they are burnt. In contrast, non-combustion energy sources—wind, sunlight, hydropower, and nuclear—do not...
is to reduce carbon emission rates to a point of nearly leveling. This is similar to the cap-and-trade system, with the main difference being energy consumers who reduce their own carbon emissions receive dividend payments from the original cap purchases. The addition of a dividend will affect everyone in the marketplace
Marketplace
A marketplace is the space, actual, virtual or metaphorical, in which a market operates. The term is also used in a trademark law context to denote the actual consumer environment, ie. the 'real world' in which products and services are provided and consumed.-Marketplaces and street markets:A...
, whereas cap-and-trade's intention is to affect everyone except consumers. The Healthy Climate Trust Fund is the agency in the U.S. government who are overseeing the cap-and-dividend policy. They will accomplish this by collecting and distributing the funds from the capping process.
Definitions
Provided are convenient definitions pertaining to cap-and-dividend:- Cap-and-Dividend:
Cap-and-dividend
DividendDividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders. When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business , or it can be distributed to...
is an approach to reducing greenhouse gas (GHG) emissions. The concept is simple: a limit or cap is placed on greenhouse gases from certain sources; these sources are required to obtain permits to cover their greenhouse gas emissions and dividends from the sale of the permits are returned directly to consumers through rebates or tax credits to compensate for increased energy costs. The cap is typically placed on 'upstream' sources – like fossil fuel suppliers – to cover the carbon content of the fuels they distribute. Some limited trading may be allowed, but typically only among covered sources.
For definitions on Cap-and-Trade, look here: Emissions trading
Emissions trading
Emissions trading is a market-based approach used to control pollution by providing economic incentives for achieving reductions in the emissions of pollutants....
History
The history of the cap and trade system is very recent; it was created and is especially relevant in the political world recently.Creation
Not much is known about who first thought of the idea, but most likely the idea came from multiple sources as an answer to the problems of cap and trade. It was, popularized by California's Peter Barnes (entrepreneur)Peter Barnes (entrepreneur)
Peter Barnes is an American entrepreneur, environmentalist, and journalist.-Early life:Barnes grew up in New York City. He earned a B.A. in history from Harvard University and an M.A. in government from Georgetown.-Journalist:...
and such groups as On the Commons
On the Commons
On the Commons is a network of citizens and organizations, based in Minneapolis, Minnesota in the United States, working to highlight the importance of the commons in the modern world....
, a network group which promotes environmental, community-related solutions.
Van Hollen Cap and Dividend Bill - 2009
Chris Van HollenChris Van Hollen
Christopher "Chris" Van Hollen, Jr. is the U.S. Representative for , serving since 2003. He is a member of the Democratic Party...
(D-Md.) put a bill before Congress on April 1, 2009, pertaining to carbon reductions and including the cap and dividend system. The cosponsors of the bill are Rep Earl Blumenauer
Earl Blumenauer
Earl Blumenauer is the U.S. Representative for , serving since 1996. He is a member of the Democratic Party. The district includes most of Portland east of the Willamette River. A native of Portland, he previously spent over 20 years as a public official representing the city.-Early...
[OR-3], Rep Lloyd Doggett
Lloyd Doggett
Lloyd Alton Doggett II is the U.S. Representative for , serving since 2005. He previously represented from 1995 to 2005. He is a member of the Democratic Party...
[TX-25], Rep Mike Thompson
Mike Thompson
Michael C. Thompson , is the U.S. Representative for , serving since 1999. He is a member of the Democratic Party. The district includes Napa, Lake, Mendocino, Humboldt and Del Norte Counties as well as parts of Yolo and Sonoma Counties....
[CA-1], Rep Lynn C. Woolsey [CA-6].
The goals of the Cap and Dividend Act of 2009 are as follows:
- Set robust, scientifically driven emissions reductions targets at 25 percent below 2005 levels by 2020 and 85 percent below 2005 levels by 2050 for covered emissions.
- Place an upstream compliance obligation on the first seller of fossil fuels into the U.S. market.
- Auction 100 percent of carbon permits.
- Include Border Adjustment provisions to protect U.S. manufacturers of carbon-intensive goods from imports of carbon-intensive goods originating in countries without comparable climate legislation and assistance for U.S. exporters of carbon-intensive goods to compete effectively in the international marketplace with carbon-intensive goods originating in countries without comparable climate legislation.
- Return 100% of auction proceeds in the form of a monthly Consumer Dividend to every lawful resident of the United States with a valid Social Security number.
This bill would also create the Healthy Climate Trust Fund, the potential agency for managing and distributing dividend funds.
The status of the bill included a referral to House Ways and Means Committee on 4/1/2009, then a referral to House Energy and Commerce Committee also on 4/1/2009, and then on 4/2/2009 a referral to the United States House Energy Subcommittee on Energy and Environment. The bill is currently being reviewed by the United States House Energy Subcommittee on Energy and Environment.
Economy
Cap and dividend, like cap and trade, would have had a direct impact on the economyEconomy
An economy consists of the economic system of a country or other area; the labor, capital and land resources; and the manufacturing, trade, distribution, and consumption of goods and services of that area...
. With a policy like this it will affect not only the major companies that will be taxed but also every household through a chain reaction of product price increases. There will be variations on how much of an impact this policy would have on different geographical areas based on population and how industrialized the area is.
Effect on companies
Caps will be placed on carbon emissions and every company that use carbon-based fuel to produce some sort of product will have to buy carbon permits. In the cap and dividend policy, every company will have to buy a carbon permit and this differs from the cap and trade policy because there will be no permits given away for free. The permits, collected by the government, will then be used to account for the dividends given back to the people. However, because of the permits' cost, the companies will be forced to raise the prices of their products so they can still make profit. The price increase will be felt by all customers of these various products.Effect on households
The cost of everything made using carbon-based fuels will increase and will be felt by everyone. However, the people most affected by the price increases are the people emitting more carbon. For example: Someone that drives a Hummer is going to have to buy more gas, which the price is increased as well, than a family that drives a fuel-efficient car. Every month the government will automatically send a dividend to offset the cost of the high prices. The people that conserve the most and produced the least amount of carbon emissions will get a bigger dividend than a person who has been producing a large amount of carbon emissions.Comparison to Cap and Dividend and other Policies
There have been numerous ideas and attempts to reduce the amount of carbon emissions. Policies have been proposed and rejected. One of the policies that has been actually used is known as the cap and trade system. It is currently being used in Europe and has influenced the people living there.There are several differences between cap and trade and cap and dividend that ultimately define each of them. A cap is placed on carbon emissions and green house gas (GHG) emissions in both policies. Based on the caps there are carbon emission permits that give the companies the ability to produce more carbon emissions then the cap would permit. These permits are auctioned off to different companies. In the cap and trade system only a set amount are auctioned off and the rest are given away for free. In the cap and dividend system all the permits are auctioned off. In both systems the cost of buying the permits will increase the price of the product made by the companies; oil, electric, and products that make carbon emissions. The thought process behind this is to dissuade the purchase of mass quantities of these products i.e. less carbon/GHG emissions. While the cap and trade system uses the high prices to control the amount of carbon emissions they do not provide a good incentive to limit carbon emission. Cap and dividend uses the dividends to reward the people that conserve the most. This will benefit the poor the most because of their living situations and this is found to be a problem with lots of people critiquing the policy.