The linked article discusses how due to political realities it is advisable to blend progressively increasing carbon pricing plans together with other popular pro-active government programs like government investment in sustainable energy research and regulation of pollution; and as time goes by and the carbon pricing amount increases, then revenue redistribution through dividends can be emphasized. While, I agree that this makes political sense; it would have made even more sense if implemented in the early 1990's. Still it is better to get started now, and at the same time acknowledge that such implementations will resulting in considerable climate change hardships:http://www.vox.com/2016/4/26/11470804/carbon-tax-political-constraints
Extract (note SCC is social cost of carbon): "A carbon tax raises money. What should be done with it? This is the central issue in carbon policy design.
On its own, a tax will face tight political constraints and be held low, well beneath the SCC. Taxes just aren't very popular.
Depending on how it's deployed, the revenue can hold energy prices down, either by funding RD&D or by directly compensating low-income consumers. It can compensate consumers or fossil-fuel producers for their welfare losses through direct payments.
More broadly, as long as the tax is beneath the SCC, alternative uses of the revenue can a) achieve cost-effective emission reductions beyond what the tax achieves on its own, and/or b) loosen political constraints, allowing the carbon price to rise. So revenue is not a side issue. It's the whole enchilada.
The most fundamental choice to be made about the revenue is whether to allow the government discretion over how to spend (some or all of) it.
Schemes that would return the revenue in various prescribed ways are known as revenue neutral, because they result in the government receiving no net revenue from the system. All the revenue is automatically "recycled" back into the economy.
The main thing to note about tax-shift schemes is that they address few of the political barriers facing carbon pricing.
A carbon/income tax swap would be doubly regressive — raising a regressive tax to lower a progressive one. Reducing payroll taxes might have a net progressive effect, but it is very difficult to imagine the politics working. Fossil fuel and other carbon-intensive industries would balk. Every consumer would see the rise in prices. And those who benefited through an incremental decline in their payroll taxes are unlikely even to notice it.
Meanwhile, many climate wonks and activists have seized on a different scheme: tax-and-dividend (or I guess we're supposed to call it "fee-and-dividend").
The idea here is to return the revenue as equal per-capita shares (dividends) to every US citizen, in the form of annual checks.
Investing in renewables outpolls dividends all along the political spectrum, including Republicans. Why? More research is needed to answer this question, or to see whether the pattern holds over time.
But at the very least tax-and-dividend proponents should temper their claims that dividends are the skeleton key to climate policy until there is more, or at least some, evidence. It's a big scheme that mainly moves money around. It's going to require a lot of calm explanation and a lot of trust in government, neither of which are abundant in US politics these days.
Also, no one has any idea how to conjure up a grassroots movement around an abstract policy idea.
As it happens, we saw what the process of building support for carbon pricing looks like in the US Congress, when Henry Waxman navigated a cap-and-trade bill through the House in 2009. He made deals and compromises, just enough to get it over the finish line.
The very same people who are so messianic about carbon pricing today were unanimous in their scorn for the process. (Boyce calls it "cap-and-giveaway.") All that compromising. Why didn't Obama and Dems just … not compromise?
No one indulges in anti-politics more than Hansen, who has called Obama's Clean Power Plan "practically worthless" and the Paris climate agreement "a fraud really, a fake." Everything is judged against the perfect policy cloud castle he's constructed in his head, the one that requires no concessions, no political sacrifices — and everything is found wanting.
But purism doesn't get policies passed. If carbon taxes as high as economists want ever arrive, they will evolve out of compromised, suboptimal beginnings, like every other major policy ever.
So, given everything discussed above, it seems to me that carbon pricing strategy discussions should begin by accepting two premises. First, a new carbon pricing system, where it is possible at all, will begin with a relatively low price. And second, sweeping wonk systems for revenue neutrality will not do much to overcome political resistance, especially in the early stages.
All the polling I've seen indicates that clean energy is extremely popular. Using carbon tax revenue for clean energy R&D is the only thing that found majority support across the spectrum in the NSEE
Clean-energy regulations and investments work because they imply a very high "implicit carbon price" — the level at which carbon would have to be taxed to achieve the same effect. Those implicit prices are higher than any politically practicable explicit carbon tax.
This bothers economists, who believe that carbon prices should be uniform across the economy, but as Jaccard says, that's politically daft. If we can't get to the carbon price we need explicitly, why not do it implicitly, where we can? Voters certainly seem more amenable to it.
In practice, carbon pricing programs never devote all their revenue to a single purpose. Real-world programs involve some mix of clean-energy investments, protection for low-income households and trade-exposed businesses, tax reductions, and direct payments or dividends. Getting the mix right requires close attention to the political economy of particular jurisdictions.
This is the kind of close analysis that's required to get the mix of revenue uses right. But getting the mix right is what allows a carbon price to pass at all, remain politically secure, and rise over time. Revenue is not an afterthought; it's the key.
But remember, carbon prices are likely to begin at relatively low levels, well short of the SCC. At those low levels, they will have mostly marginal background effects.
In the early years, the programs and investments funded by the revenue will be more visible and salient to voters. And as a bonus, most uses of the revenue are more politically popular than a tax."
Extract: "Raising the price of carbon dioxide emissions would mitigate climate damage by reducing demand for non-renewable energy sources like oil, coal, and natural gas. But can we forestall new economic burdens for Americans with low or middle incomes? SSN experts explore the issues and suggest ways to design economically equitable carbon pricing programs with broad democratic appeal."