What is carbon pricing?

Carbon pricing is any policy that requires polluters to pay for their greenhouse gas emissions, usually with a fee on the sale and production of fossil fuels. Economists across the political spectrum argue that a predictably increasing price of fossil fuels is the fastest, cheapest way to spark the transition to a renewable world. The alternative way to price carbon is a cap-and-trade system. Oregon Climate has pursued two bills in the Oregon legislature: a carbon fee and dividend, and a carbon cap and dividend.

Fossil fuel companies are not accountable for the hidden costs created by their pollution, leaving taxpayers on the hook for floods, wildfires, superstorms and droughts. A carbon price exposes the true costs of coal, gasoline, diesel and natural gas, leveling the playing field for renewable energy sources and rewarding consumers who make smarter decisions.

To learn more about the policy differences between a carbon cap and carbon fee, see these brief explanations from the Center on Budget and Policy Priorities and the New York Times editorial board.

Why price carbon?

The climate crisis is too urgent for us to scatter our efforts. We must eventually row together, and we believe the most practical solution is the most likely to win broad support among our allies. Economists of every political persuasion argue that a predictably increasing price on fossil fuels is the fastest, cheapest way to spark the transition to a renewable world. It would stimulate innovation in the energy sector and use the free market to sort our societal abatement priorities. In other words, a good price signal saves us the trouble of figuring out the comparative efficiencies of power plants and the relative merits of carpooling or riding the bus--our most wasteful activities will automatically become the least profitable ones. By uniting behind a strong and well-supported economic concept, Oregon Climate hopes to build a movement that will hold fast until the job is done.

Have other states or countries pursued carbon pricing?

About 40 countries already price carbon and dozens more are exploring it. (Check out Sightline's interactive world map). In 2005, the European Union enacted a cap-and-trade plan for carbon pollution, and at the United Nations, European leaders pushed hard for the rest of the world to sign on.

So far the results have been great. British Columbia's tax has effectively reduced province-wide carbon consumption and given their economy a subtle boost. Similar claims can be inferred from preliminary research on Sweden and Australia’s carbon taxes. Within the United States, for the carbon dividend, the most relevant case study is Alaska: the fossil fuel industry pays into a trust, which is then used to benefit everyone in the state.

Who would pay for carbon pricing?

Most carbon pricing policies target the vendors fossil fuels, but consumers should expect that some of the costs will get passed on to them. Oregon Climate supports a gradually increasing price on carbon to give consumers the opportunity to transition to cleaner and cheaper energy sources and avoid significant financial impact.

Carbon pricing is not intended to punish consumers; rather, it protects consumers from climate change-driven price spikes of vital goods and services. Additionally, with a predictably increasing cost of dirty energy, alternatives to fossil fuels--public transportation, electric cars, even locally grown foods--will become more widely available and affordable. Consumers who switch to these fossil fuel alternatives will be able to avoid the rise in dirty energy prices, while still enjoying the benefits of the revenue from the carbon price and a healthier climate.

What sources would be priced, and at what rate?

Oregon Climate proposes a fee on all fossil fuels and electricity at their first point of sale inside the state at a rate of $30/ton of carbon dioxide equivalent, scheduled to increase automatically at a rate of $10/year. This is equivalent to an increase in gas prices of about 9 cents per year. The equivalent rates of liquid fuels are determined from data published by the International Energy Agency.

The effective ‘rate’ of a carbon cap is difficult to predict. Oregon Climate supports a cap that gradually reduces carbon pollution 80% below 1990 levels by 2050. The price for permits, then, would be determined in auction markets.

What are you doing with the revenue?

Oregon Climate supports the Price and Dividend model, in which the revenue of a carbon fee or carbon cap would be evenly distributed among taxpayers by mail once a year. Carbon pricing is very cost effective--it returns the most environmental bang for the economic buck--but it would be regressive by nature, since low income households spend a relatively high fraction of their income on energy. An evenly-distributed dividend fixes the problem because it would return more money back to low income households than would take in higher energy prices. In other words, the dividend would turn a radically regressive solution into a radically progressive one.

A dividend also makes the policy revenue neutral--it doesn’t grow the size of government and therefore avoids the controversial politics that has kept Congress in a state of gridlock for years. Oregon Climate strives for a solution to inspire federal action, and we worry that a revenue positive climate bill--one that prices carbon to finance public programs--will strengthen the narrative that climate change is an elaborate hoax to expand the size of government.

Most importantly, the dividend would protect the carbon price from repeal, as consumers will see the money from the tax returned to them directly. Gas will have to get pricey before we win the future of our planet, and nothing upsets voters quite like expensive gas. The natural beneficiaries of the revenue should be the victims of climate change--all of us. If voters start to count on that check in the mail, it will be political suicide to repeal our hard-won climate solution. Basically, we want our climate solution to have the same robustness as Alaska’s permanent fund.


How would the dividend be distributed?

All the revenue from the carbon fee or carbon cap would be evenly distributed by mail, at regular frequencies, to everyone who filed an Oregon tax return and each of their dependents. Distribution would be managed by existing state agencies, so the administrative costs would be minimal. One need not make an income to receive a dividend.

The size of your dividend will not depend on the amount of energy you consume. Your check would be the same as everyone’s, even if you consume no fossil fuels at all. Oregonians would therefore maximize their net return from the dividend by reducing their fossil fuel consumption. The dividend is also a non-regressive: since low-income households consume relatively little energy, their dividends will typically exceed their share of the carbon tax.

Why are you pursuing two carbon pricing systems? Which one is better?

‘Cap and trade’ is economically the same idea as a ‘carbon tax.’ Both require that polluters pay for the fossil fuels they burn and both create a price signal to encourage efficiency and investment in more energy choices. And, for Oregon Climate’s part, 100% of the revenue from either would go to the dividend. The difference comes down to the mechanism by which polluters pay. Oregon’s constitution puts very specific limits on any proposal that could raise the price of gas, so legally speaking, it’s safer to offer two different mechanisms. What matters more than the particular mechanism is whether it is designed to meet scientific pollution targets; cover all pollution sources; and minimizes loopholes like pollution offsets.

What is Cap and Dividend?

Cap and Dividend is a simple, fair, and built-to-last policy solution to reduce the carbon and other heat-trapping emissions now harming our climate while boosting the income of most Oregonians families. It caps fossil fuels, requires energy companies to purchase pollution permits at auction, and returns all the auction revenue in equal amounts to every Oregonian taxpayer. Learn more by visiting the federal Cap and Dividend bill website.

What is a carbon fee?

A carbon tax (or “carbon fee”) is a simple policy that would put an end to free dumping of carbon dioxide into our atmosphere. Ideally, the vendors of fossil fuels and energy produced by the burning of fossil fuels would pay a fee at the most upstream point of sale--that is, at the wholesale level. Currently, the fossil fuel industry doesn’t pay the hidden costs of their business, leaving taxpayers financially on the hook for floods, wildfires, superstorms, droughts and ocean acidification. A properly designed carbon tax would internalize these hidden costs, and the resulting price signal would encourage consumers to abate consumption and give renewable alternatives an advantage over coal, gasoline, diesel and natural gas.

What is the difference between a tax and a fee?

A tax has the primary function of raising revenue, while a fee recovers the cost of providing a service from a beneficiary. Oregon Climate supports a revenue-neutral carbon pricing policy that won’t grow the government, so technically, it’s a fee and not a tax. However, for purposes of discussion you may find carbon tax and carbon fee used interchangeably, and referring to the same type of legislation. This is fine, and don’t let it get in the way of the discussion. The tax or fee do the same thing, which is to include the damage that carbon is doing to our climate, oceans, and health in the price.

Can any one state significantly impact the environment?

Most states' share of greenhouse gas emissions are insignificant on a planetary scale. However, states are a great position to demonstrate just how effective smart climate legislation can be. For instance, in Oregon, we're small enough to try something new (we led the country with the bottle bill, after all) and large enough to prove the feasibility of the legislation on a significant scale. The ultimate hope is for sub-national action is for trailblazing states to lead the US to effective climate legislation.

Do Americans want a price on carbon?

Yes! National Yale data shows that roughly twice as many people support the carbon fee and dividend as oppose it (44% to 25%). Additionally, an April 2015 Stanford University-Resources for the Future poll shows that two-thirds of Americans support making corporations pay a price for carbon pollution, provided the revenues are redistributed. March 2014 Latino Decisions and NRDC report found that "9 out 10 Latinos want action against climate change" and "more than three-quarters (78 percent) of Latinos would view members of Congress either “somewhat” or “much more” favorably were they to support a carbon tax." Voters at the state level are also ready for action. For instance, 50% of Oregonians support a carbon fee, as shown in the Oregon Values Project study.

Do conservatives support carbon pricing?

Do conservatives support pricing carbon?

Yes, they do. Check out the Carbon Tax Center's list of politicians, writers, pundits and economists; members of Citizens' Climate Lobby's advisory board; and work to promote revenue-neutral carbon pricing - in Oregon! - from the R Street Institute.