Cap and dividend

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 governments setting aggregate pollution quotas (e.g., for carbon emissions) and selling pollution permits to the public respectively. Polluters are required to buy those credits to match their pollution outputs. Some of the cost producers pay for pollution will result in higher costs for consumers, who as citizens are additionally faced with the environmental costs of the pollution. Under the cap and dividend system, public revenues raised from the sale of pollution credits is rebated to citizens or to consumers as a subsidy for increasing efficiency.

The goal of this type of pseudo-tax is to reduce carbon emission rates. This is similar to the cap-and-trade system, with the main difference being that citizens receive dividend payments financed from pollution rents that are publicly captured, as opposed to leaving the value of pollution privileges to become financialized as private assets. The dividend payments can also finance the addition of incentives designed to encourage consumers to increase energy efficiency, whereas cap-and-trade does not directly involve the consumer. 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.

Provided are convenient definitions pertaining to cap-and-dividend:

Cap-and-dividend 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.

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