 Welcome to the political economy of the environment. I'm Jim Boyce. Today we're going to be talking about climate change. The main contributor to global warming, the main greenhouse gas is carbon dioxide. And the main source of carbon dioxide is the combustion of fossil fuels, the burning of coal, oil and natural gas. And that's what I want to focus in on today. And thinking about the policies we can use to try to stabilize our climate, prevent the possibility of catastrophic events in the future, protect the rights of future generations to enjoy the same level of well-being that we enjoy today. The clean energy transition, the transition away from the use of fossil fuels towards the use of clean sources of energy is something that is going to happen over the next century. The question is how quickly it will happen and whether we as a society will be among those who lead in that transition or whether we lag behind. But sooner or later this has got to happen. The quicker it happens, the better it's going to be for the well-being of current as well as future generations. The clean energy transition is going to be a source of job creation. The reason for that is that energy efficiency investments, things like retrofitting buildings, the production of renewable sources of energy and even carbon sequestration, reforestation of deforested landscapes, the creation of what's called biochar, which is basically coal mining and reverse. It's burning biomass to create charcoal and then plowing that into the soil where it can be sequestered for hundreds of years. These kinds of activities reducing our need for energy by investing in energy efficiency, switching into renewables and sequestering carbon all will create jobs and they'll create more jobs than currently exist in the production of fossil fuels. They're more labor intensive. They also have more domestic content. More of those jobs are within the nation's own economy. And so the transition to a clean energy economy will be a good thing from the standpoint of employment. It'll create more jobs. Climate policy, the clean energy transition will also create new forms of wealth and that's what I want to focus on in my last couple minutes here. It's not just about job creation. It's also about wealth creation. When we put a price on carbon emissions, which will be part, I believe, of the solution to the problem of global warming. When we do that either by imposing a carbon fee or carbon tax, charging a certain amount for every ton of carbon that comes into the economy in fossil fuels or by putting a cap on the amount of carbon and releasing permits up to the limit imposed by that cap, a cap which decreases over time. In either case, we're going to be making fossil fuels more expensive. We're going to be increasing their price and that's going to provide incentives for producers and consumers to invest in energy efficiency and invest in renewables. Now when we put that price on carbon emissions, an important question is who's going to get the money? We're using an incentive here to reduce emissions. We're making polluters pay for putting carbon dioxide into our atmosphere. The question is, who owns that atmosphere and who's going to get the money? Broadly, there are three possibilities. One possibility is that we say, well, the atmosphere belongs de facto to the fossil fuel companies that have already been using it as a sink for the disposal of their wastes. So what we're going to do is we're just going to give them the permits for free. We're not going to charge them anything for those permits. And then because some firms will get more than they need and others will get less than they need, we'll create a market and let them trade among themselves. That option is sometimes called cap and trade, but really the only reason you need to have trading is that you gave away the permits to begin with on the basis of some more or less arbitrary formula usually involving the firm's historic level of emissions. Those who polluted more, who brought more carbon into the economy in the past, get more permits to start off with than those who brought in less. That's a system sometimes called grandfathering, although as you can see, I'm in an age where I regard that not only as a sexist, but also as an ageist term. I call it cap and giveaway. And the right name for cap and trade, therefore, is cap and giveaway and trade. If you do that, the firms get the permits for free. Prices to consumers go up because you're limiting supply in the same way that OPEC limits supply in order to raise oil prices and increase its profits. And the firms get to keep those as windfall profits that ultimately get distributed to their shareholders, both domestic and foreign, who tend to be among the wealthier stratum of the world's population and the country's population. That's what happens under cap and giveaway and trade. That's one way of deciding who gets the money that we pay and hire fossil fuel prices. A second possibility is that the government gets the money. The permits aren't given away for free. They're auctioned off, 100% auction off, no giveaways, but the government uses that revenue either for spending or for reducing other forms of taxes or possibly for reducing the government deficit. Alternatively, under a carbon tax, the government imposes a fee, a tax on the import of carbon into the economy, and again, uses the money to spend or reduce other taxes as it wishes. In that case, de facto, we've assigned the right to the air, the ownership of the capacity of the atmosphere to absorb carbon emissions to the state, to the government. And how we feel about that often depends on how we feel about the government. A third possibility is that we redistribute that money back to the people. In the end, the consumers will be paying the higher prices for fossil fuels. And if we think that the air belongs in equal and common measure to all of us, the policy that follows from that is that we take the money, we auction off the permits or again, charge a fee, and rather than have the government keep that money, the government redistributes it to the people on an equal per person basis, an equal amount for every man, woman, and child in the United States. That's called cap and dividend. It could be done not only in the United States, it could be done in every country in the world, each country. It can even be done at the state level. Each state can adopt such a policy, putting a price on carbon emissions, and recycling the proceeds to the public in the form of equal per capita, equal per person dividends. If we did that, it would not only embody the principle that the Earth's atmosphere belongs to all of us in equal and common measure. It would protect the quality of the environment for future generations. It belongs to them too, and the whole purpose of pricing carbon is to protect that future resource for generations to come. But it would also mean that for the majority of households, the amount of money they would receive in their dividends would exceed what they're paying at higher fossil fuel prices. This is because income and consumption are highly skewed in the United States towards the top of the income distribution. The mean is above the median in statistical terms. So more than 50% of the households would be getting back more money than they pay in higher fossil fuel prices. And I believe that that would help to maintain the political durability of the policy, of the climate policy for the decades that will be needed to achieve the clean energy transition. In the face of rising fuel prices, there will still be robust public support for the policy because most people see that it's not only protecting the environment, it's not only giving us cleaner air, but it's also protecting their purchasing power and not coming at the expense of the economic well-being of themselves and their families.