New Senate climate bill proposes a "cap and dividend" model. (Photo: seng1011)

Cantwell-Collins 'cap-and-rebate' plan would refund 75% of all revenue collected back to U.S. residents in a monthly check of roughly $100 per family of four.

Just one day after Sens. John Kerry (D-Mass.), Joseph Lieberman (I-Conn.) and Lindsey Graham announced a possible breakthrough in a Senate climate bill and right before everyone's attention focused on the Copenhagen climate summit, Senators Maria Cantwell (D-Wash.) and Susan Collins (R-Maine) introduced an alternative climate bill into the Senate they claim would achieve a reduction in greenhouse gas emissions of 20 percent by 2020 and 83 percent by 2050.

And because it has bipartisan and moderate-Democrat support, it might just have a better chance of clearing the Senate than the Kerry-Lieberman-Graham bill, which favors a cap and trade mechanism, especially in the current economic and political climate.

But despite the political viability of a climate bill that would refund three-quarters of all the revenue it generates, some argue that emission reductions would be slow to kick in and possibly insufficient to make any serious dent in our greenhouse gas emissions; and that the program would not generate the kind of investment really required in the clean tech sector to spark meaningful growth.

The Cantwell-Collins Carbon Limits and Energy for American Renewal (CLEAR) Act would set up a mechanism for selling “carbon shares” to fuel producers and would return most of the resulting revenue in checks to every American via a monthly rebate check. According to a report (pdf) released by Senator Cantwell's office, a typical family of four would receive tax-free monthly checks from the government averaging $1,100 per year, or $21,000 between 2012 and 2030.

The legislation would create an "upstream" cap on fossil fuel importers and producers and require them to purchase emissions permits from the federal government at regular monthly auctions and could then trade these permits amongst themselves in secondary markets. Generating revenue via upstream sources means, for example, that operators of a coal-fired power plant would  not buy carbon permits, the permits would be bought by the company that mined or imported the coal.

The resulting revenue generated by the auctions in the CLEAR Act would be used for two vital functions: First, 75 percent would be refunded to every individual residing legally in the United States. Cantwell and Collins say the dividend would more than compensate for the increase in carbon-based fuel that producers would pass on to consumers.

Second, the remaining 25 percent would be put into a fund used for clean energy research and development, regionally-specific assistance for communities and workers transitioning to a clean energy economy, heavy industry, energy efficiency programs, and reductions in non-CO2 greenhouse gases. An analysis by Jesse Jenkins at the Breakthrough Institute puts a best case revenue scenario under Cantwell-Collins at an "estimated $10-32 billion annually at the outset of the cap and auction program, increasing over time as carbon prices rise to roughly $16-46 billion by 2020."

The legislation also directs the President to achieve additional emissions reductions in non-capped sectors of the U.S. economy by directly funding programs to encourage land-use changes that sequester carbon in forestry and agriculture or reduce emissions of non-CO2 greenhouse gases such as methane.

The political viability of Cantwell-Collins

The 39-page CLEAR Act has been welcomed by an unusually diverse array of supporters. “Not only is Senator Cantwell’s bill admirably brief," said Dr. Kenneth P. Green at the Libertarian think tank, the American Enterprise Institute,  "it avoids some of the pitfalls that critics of cap-and-trade legislation have enumerated at length, such as windfall profits for emitters and special interest groups, the potential for fraudulent foreign offsets, and the creation of new poorly understood financial instruments."

But perhaps the biggest difference between Cantwell-Collins and the cap-and-trade mechanism in the House version passed this summer--and its cousin in the Senate--is that there are no carbon offset mechanisms in Cantwell-Collins. As a result, the CO2 market will be more closed, possibly reducing the likelihood of the whole carbon-trading system being gamed for profit, and definitely reducing the chances of another Wall Street-enabled market bubble.

After the often rancorous health care debate that just wrapped up in the Senate, some might argue that the Democrats, and President Obama, have waning political capital to get any expensive/controversial legislation pushed through Congress. And in an election year, the fence-sitting Blue Dog Democrats--especially those representing the coal-heavy Midwest and mountain states--are likely to create enough of a stink that getting any climate legislation passed before November, 2010 is going to be problematic, to say the least.

Photo: seng1011 via flickr/CC 2.0; Graph: World Resources Institute