Real relief from high gas prices
Gasoline prices are up. Consumers are hurting. Politicians are wringing their hands and talking about "relief." The Biden administration has tapped strategic oil reserves in an effort to bring down prices. Whether this works will depend on whether the Saudis, Russians and other members of the OPEC+ oil-producing cartel retaliate by further tightening the screws. Others are calling for the suspension of state gasoline taxes, a palliative that fails to address the causes of our current distress.
What would real relief from high gas prices look like? The answer has a surprising twist: real relief doesn't mean lower prices. It means changing who gets the money.
Imagine that instead of the profits from higher gas prices going to oil producers, the money went straight into the hands of consumers as equal monthly payments - like the COVID-19 stimulus checks, but recurrent.
Imagine that instead of luring consumers to remain hooked on gasoline, subject to periodic price gouging, we decide to raise gas prices ourselves, generating reliable price signals to spur more energy-efficient vehicles and transportation alternatives.
Imagine that by weaning ourselves from gas dependence we gain additional benefits: relief from dirty air that kills tens of thousands every year in the U.S. and millions worldwide; relief from the constant hemorrhage of government subsidies for fossil fuels and from wars for oil fought at staggering human and financial cost; and, above all, relief from ongoing destabilization of the earth's climate.
Imagine that freedom from gasoline addiction also brings freedom from politicians who bemoan higher gas prices while stuffing their campaign coffers with oil company contributions.
None of this is impossible. We can beat OPEC at their own game by putting a hard ceiling on the amount of fossil carbon that we allow into our economy. Permits would be issued up to the limit set by this ceiling. Oil companies would buy these permits in quarterly auctions, just as power companies have been doing since 2009 in eastern states under the Regional Greenhouse Gas Initiative. The revenue would be recycled to the public as carbon dividends, just as Alaska now pays dividends to its residents from the state's oil revenues.
Slowly but surely, this idea is gaining ground here and in other countries.
In the U.S., carbon dividends were first proposed in 2009 in a bipartisan bill sponsored jointly by Sens. Maria Cantwell (D-Wash.) and Susan Collins (R-Maine) and a House bill sponsored by former Rep. Chris Van Hollen (D-Md.), who is now a senator. At the time, however, the Democratic leadership chose instead to put its eggs in the "cap-and-trade" basket. Their political calculation was that free permits, and the resulting promise of windfall profits, would neutralize opposition from fossil fuel lobbyists. It didn't work. Cap-and-trade has been has been dead in Washington ever since, but today several new bills have been embraced the carbon dividend alternative.
In 2019, more than 3,000 economists endorsed a carbon dividend policy in an open letter signed by four former chairs of the Federal Reserve Bank, including current Treasury Secretary Janet Yellen, 15 former chairs of the Council of Economic advisers, and 28 Nobel laureates.
Canada recently launched the world's first carbon dividend program in all provinces that did not already have their own carbon price, including Ontario. The initial price was set low, but the government plans to raise it to about $135 USD per ton by 2030. The main weakness of the Canadian system is that it returns the money as an income-tax adjustment, rather than more visibly and transparently as a check in the mail or electronic bank deposit.
Carbon dividends are now being actively discussed in Germany. Two of the three coalition partners in the incoming government - the environmentalist Greens and the market-oriented Free Democrats - endorsed the idea in their party platforms. Social Democratic Party leader Olaf Scholz, who will head the new government, says he wants to be a "climate chancellor."
Instead of treating the symptom of higher gas prices dictated by forces beyond our control, do-it-ourselves carbon prices coupled with dividends would tackle the underlying malady. Instead of hollow rhetoric and temporary fixes, consumers at last would get real relief, by controlling where our money goes.
James K. Boyce is a senior fellow at the Political Economy Research Institute at the University of Massachusetts Amherst and author of "The Case for Carbon Dividends."
