Carbon fee and dividend

Fee and Dividend or Carbon Fee and Dividend (CF&D) is a market-based mechanism for reducing the carbon emissions that help to drive anthropogenic climate change. Carbon Fee and Dividend begins with levying imposing a progressively-rising fee on carbon-based fuels, then returning some or all of the fees collected to the public as a regular energy dividend. This is intended to incentivize a shift to low-carbon energy while protecting consumers from any increases in the costs of carbon-based fuels.

Designed to maintain or improve economic vitality while speeding the transition to a sustainable energy economy, Carbon Fee and Dividend has been proposed as an alternative to emission reduction mechanisms such as complex regulatory approaches, cap and trade or a straightforward carbon tax.

The basic structure of Carbon Fee and Dividend is as follows:

In order to maximize effectiveness, the amount of the fee would be regulated based on the scientific assessments from both economic and climate science in order to balance the size and speed of fee progression.

In late-2012 the Energy Modeling Forum (EMF), coordinated by Stanford University, released its EMF 29 study titled "The role of border carbon adjustment in unilateral climate policy". It is well understood that unilateral climate policy can lead to emissions leakage. As one example, trade-exposed emissions-intensive industries may simply relocate to regions with laxer climate protection. A border carbon adjustment (BCA) program can help counter this and related effects. Under such a policy, tariffs are levied on the carbon embodied in imported goods from unregulated trading partners while the original climate protection payments for exported goods are rebated. The study finds that the BCA programs evaluated:

In light of these findings, the study recommends care when designing and implementing BCA programs. Moreover the regressive impact of shifting part of the abatement burden southward conflicts with the UNFCCC principle of common but differentiated responsibility and respective capabilities, which explicitly acknowledges that developing countries have less ability to shoulder climate protection measures.

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