Climate income: one solution for 2 global crises

What would you think of a policy that tackles both the climate crisis and the economic crisis caused by the Corona pandemic? The Climate Income: a proposal for a policy that rapidly reduces CO2 emissions, makes money available to people, stimulates the economy and creates jobs, and is not a burden on the public budget.

The Corona pandemic has shaken us roughly. It has taken us out of our familiar cocoon, and shown that our safe and civilized world may not be so safe after all. It has also brought us face to face with certain facts ... including the fact that people have quite a few cognitive biases (read: that we perceive reality quite filtered and twisted). We have seen the imminent danger far too late, even when serious warnings and alarming figures came out of Wuhan. Somehow we thought Corona would make the distinction between a Chinese and a Western man. It will happen to the Chinese, it won't happen to us. We didn't say it out loud, but, admit it, we were thinking like that.

Virologists and politicians said it, newsreaders said it after them, and we - admittedly, I too – said what we heard from them: "It's only a kind of flu". I quickly changed my mind when I saw the first tweets coming from Italy: "Please, take this virus seriously, our parents and grandparents are dying".

With regard to another crisis, we are still living in a cocoon today: the climate crisis. A crisis that is taking place much more slowly than the Corona crisis, but whose consequences will be even more devastating. Sooner or later, the world will recover from the Corona crisis. We 'll get the virus under control, scientists will find a vaccine, and we 'll return to the normal world. However, if we let the climate crisis get out of hand, there will be no normal world to return to.

It is not difficult to see what the cocoon of the climate deniers consists of: they desperately cling to the world they know and are therefore blind to all the facts that threaten their world view. But even those who take climate change seriously live in a cocoon. Take, for example, the UN climate conferences. We have become accustomed to the fact that the climate crisis has been the subject of meetings, negotiations and roaring statements for decades, without noticing how absurd this whole situation really is. If our house was on fire, would our first impulse be to meet for days, let alone years? Unfortunately, man is a creature of habit and after a while accepts the most absurd situations as normal. In any case, the curve of the atmospheric CO2 concentration doesn't care much about all these negotiations. The Kyoto Protocol and the Paris Accord have caused no perceptible change in the CO2 curve.

It has been 30 years since the first IPCC report was published, which made clear that our greenhouse gas emissions urgently need to be reduced. Since then, annual CO2 emissions have risen by more than 60%. The key question is: how do we prevent that the same thing will happen in the next 30 years?

Some people have put their hopes in renewable energy. And indeed, renewable energy has grown faster than most observers predicted. But is renewable energy already replacing fossil fuels, or is it just covering the increase in energy demand ? And will the renewable energy revolution come in time to avoid the worst ?

Current forecasts for the next 30 years indicate that renewable energy will grow strongly, but unfortunately so will global energy demand. As a result, global fossil fuel consumption will scarcely be reduced by 2050.

Can we derive some hope from the current Corona crisis? Because of the lockdown, fossil fuel consumption has temporarily dropped sharply. It is estimated that global CO2 emissions will fall by about 5.5% in 2020, the largest drop in emissions in a century.

All right, but what exactly can we learn from this ? Is this proof that mankind will be able to solve the climate problem simply by travelling less, consuming less, less of everything ? And should we consider the accompanying economic recession (the biggest in the last century) and the rise in unemployment as unfortunate but inevitable collateral damage ?

I don't think so. In fact, it is counterproductive and damaging to propose this path as a solution, as if we had to put the economy into some kind of permanent coma to save the climate. An inhumane solution that doesn't work either. If it takes such a deep economic recession to reduce emissions by 5.5%, what should we do to achieve the remaining 95%? What we need is a deep decarbonisation of the economy: carbon-neutral alternatives must replace all carbon-intensive goods and services.

A second lesson that this crisis teaches us: the economy is a complex dynamic system with many feedbacks. One of those feedbacks we saw at work during the Corona crisis: if we significantly reduce our fossil fuel consumption, fossil fuel prices will plummet, and that will then encourage people to consume more fossil fuels. On April 20th the price of a barrel of crude oil was even lower than $0. Such low prices threaten to undo all our efforts to use less fossil fuels. A lesson we'd better take to heart.

Another problem to take into account is the budget deficit. The Corona bill will make a deep hole in the budget. According to the IMF, the Corona pandemic will cause the budget deficit in Belgium to rise to 7% of GDP. In order to help families and get the economy back on track, money will be needed, a lot of money. Under these circumstances, do we have the means to tackle the climate crisis as well ?

The Climate Income

There appears to be a policy that takes all these problems into account. It reduces CO2 emissions quickly, it makes money available to people, it stimulates the economy and creates jobs, and moreover, it is budget neutral.

That policy is the carbon fee and dividend, also known as the Climate Income. It consists of 2 parts: raise a gradually increasing fee on all fossil fuels, and distribute the proceeds of this fee to people as "Climate Income". With the current historically low fuel prices, now is the ideal time to introduce it.

The carbon fee accelerates the phase-out of fossil fuel use. It makes polluting products more expensive than clean products. Travelling by train becomes cheaper than taking an airplane. Locally grown vegetables become cheaper than beans flown over from Africa. The fee will encourage people and companies to choose the clean, ecological solutions. It will also accelerate the development and large-scale commercialisation of carbon-neutral technologies such as solar panels and wind turbines.

If the carbon fee is applied economy-wide, and is high enough, it is a lever for change, larger than the largest green climate fund. To put this in perspective: the European Green Deal includes a €1,000 billion fund for the next 10 years. However, a carbon tax would impact the whole European economy, amounting to more than €18,000 billion per year. It would divert the big money away from the fossil industry, and channel it towards climate solutions. It would achieve exactly what we want: a deep decarbonisation of the economy, without causing an economic recession.

The proceeds of the carbon fee will be distributed equally among all citizens of the country. This climate income ensures that the average cost of living does not increase. It also ensures a redistribution from rich to poor. The majority of households, especially low and middle-income households, benefit from this policy. The Climate Income is therefore a game-changer that enables politicians to pursue an ambitious climate policy that is nevertheless widely supported by the population.

The policy is self-financing, so no new budgets are needed to implement it. A great advantage in times of economic crisis and rising budget deficits.

The carbon fee and dividend also stimulates the economy and creates jobs, especially in the renewable energy sector. In 2014, Regional Models Inc. (REMI) in the US undertook a comprehensive macro-economic study of the feasibility and benefits of this policy. The conclusion was that this approach in the US would lead to a rapid reduction in CO2 emissions, additional economic growth, the creation of 2.8 million new jobs and the prevention of 230,000 premature deaths by reducing air pollution. We can reasonably assume that similar conclusions apply to Europe.

Many economists are strong supporters of this solution and have long advocated the introduction of the carbon fee and dividend. An open letter on the subject was published in the Wall Street Journal in January 2019. It was the largest joint statement by economists in history, signed by more than 3,500 economists, including 27 Nobel Laureates, 4 former Federal Reserve Presidents and 15 former Presidents of the U.S. Council of Economic Advisers.

Climate income is gaining popularity worldwide. It has been applied in Switzerland since 2008. In April 2019 it was also introduced in Canada. A similar bill, the "Energy Innovation and Carbon Dividend Act", is currently being submitted to the US Congress with bipartisan support. The idea has now spread to 13 countries.

We are, more than ever, at a crossroads. If we are short-sighted, we say: let's solve the Corona crisis first, since we lack the means to tackle the climate crisis as well. Or we can seize this historic opportunity to take a big step towards solving both problems: the climate crisis and the Corona economic crisis with one simple policy, the Climate Income.