Equal per capita carbon dividends and the waste objection

ABSTRACT

Recycling carbon revenues as Equal Per Capita Carbon Dividends (ECDs) is thought to neutralise the two main objections to carbon pricing, namely that it is regressive and that it hinders the poor from meeting basic needs. This article focuses on the waste objection to carbon pricing plus ECDs. If the rationale for ECDs is to protect the consumption of the worst off, why pay carbon dividends to the rich as well? I examine three different normative arguments in favour of ECDs. First, the argument of common ownership of the atmosphere, which can be based on both libertarianism and isolationist egalitarianism. Second, the argument that the rich are net contributors to ECDs through their carbon taxes. Third, a consequentialist argument focusing on the pragmatic advantages of ECDs, especially in terms of social acceptability and low information costs. I conclude that none of these arguments can provide a normative justification for ECDs.

KEYWORDS:

• Carbon inequality
• carbon pricing
• carbon revenues
• fairness
• past emissions

1. Introduction

It is generally agreed that carbon pricing is, among other things, the most cost-effective way (Errendal et al. 2023) to achieve the mitigation goal set out in the Paris Agreement to limit global warming to between 1.5°C and 2°C above pre-industrial levels (UNFCCC 2016: Article 2). However, the main concern about carbon pricing is that it will fall on the poor. Specifically, it is feared that carbon pricing could have two morally problematic consequences. First, a carbon price could impose a higher financial burden, measured as a percentage of income, on the worst off than on the best off (Feindt et al. 2021, Arcilla and Baker 2022). A regressive carbon price would lead to unfair sacrifices for climate mitigation (Boyce et al. 2023, p. 6; Tank 2020). Second, a carbon price could create an additional barrier for low-income people to meet basic needs. The carbon price-induced increase in the cost of fossil fuels would indeed raise the prices of basic goods and services, from food to transport to home heating (Zhao et al. 2022). Under conditions of general abundance, a distribution of wealth that prevents one or more people from meeting their basic needs is unjust according to most relevant accounts of justice (see Copp 1992). It should also be stressed that even if carbon pricing were not regressive in certain social contexts, for example because the rich spend a higher percentage of their income on emission-generating consumption and thus pay proportionately more carbon taxes than other social groups, the problem of basic needs would persist (Metcalf 2019, pp. 91–95, Mintz-Woo 2024, p. 7).

Carbon pricing advocates, though, have a straightforward answer to both objections. Simply take the carbon revenues and, instead of channeling the money into the government budget, recycle it back to low and middle income people to offset or even exceed the monetary sacrifice imposed on them by the carbon price (Budolfson et al. 2021). One prominent proposal for recycling carbon revenues is through Equal Per Capita Carbon Dividends (hereafter ECDs): the carbon revenues collected by an administrative authority over a period of time, say a calendar year, are distributed equally to the people who bear the burden of the carbon price (Climate Leadership Council 2019). Indeed, in most simulations, the balance between carbon taxes and ECDs is inversely proportional to income, being positive for the poorest income deciles of the population, positive but small for the middle deciles, and then slightly negative for the highest deciles (Fremstad and Paul 2019, Metcalf 2019, Boyce 2019).

It could be argued that if the worst off come out ahead of carbon pricing + ECDs, they will be able to hold their ‘brown’ consumption steady, and this would obviously be problematic for the climate. The argument in favour of carbon dividends, however, is that the worst off will act rationally in the face of the carbon price incentive and shift from ‘brown’ to ‘green’ consumption in order to maximise the difference between carbon dividends, which are fixed independently of individual choices, and carbon taxes, which are a function of individual ‘brown’ consumption (Mintz-Woo 2021, pp. 62–63). Whether and to what extent the arguments put forward by advocates of carbon pricing + ECDs work in practice, and whether the carbon price should be complemented, at least in some circumstances, by other policy instruments such as subsidies and regulations, is a question I will not address here and leave open (see Tvinnereim and Mehling 2018).

There is, however, another objection to carbon pricing + ECDs that has received so far little attention in the literature. If it is true that for a carbon price reform to pass the test of fairness it must not worsen the conditions of the worst off, why waste precious resources by recycling carbon dividends to the rich as well? In other words, if the rationale for recycling carbon revenues is to avoid the carbon price both exacerbating inequalities and hindering the worst off in meeting their basic needs, why not recycle all carbon revenues back to the worst off? The purpose of this article is to examine whether the ECDs proposal can meet what might be called the waste objection (see also Maskivker 2018, Bidadanure 2019, p. 485). For the sake of analysis, I will limit my investigation to the following question. Can the same normative concerns that justify the recycling of carbon revenues in the form of carbon dividends also justify paying them to the top income decile of taxpayers as well?

I will analyse three different justifications that can be given for ECDs. First, the argument of common ownership of the atmosphere. If the atmosphere belongs to everyone equally, then the user charge must end up in a common pot for everyone, including the rich. Second, the rich-pay-for-themselves argument, according to which there is nothing wrong with the rich receiving ECDs as long as what the rich pay in carbon taxes is higher than what they receive back in ECDs. Third, a consequentialist argument, according to which, as the climate crisis worsens by the day, we must choose the use of carbon revenues that is most likely to maximise social welfare, given social acceptability and information costs.

My conclusion is that none of these three arguments provides a justification for preferring ECDs to what I call, for simplicity’s sake, Targeted Carbon Dividends (TCDs). The latter is an alternative method of recycling carbon revenues in the form of carbon dividends that are equal for all, but not for the rich. TCDs can be modulated in different ways, depending on what is meant by the rich and what (if anything) is recycled to them. In this paper I will consider a version of TCDs in which the rich are identified with the top income decile of society and no carbon dividends are paid to them.

2. The common ownership of the atmosphere argument for ECDs

The argument that the atmosphere is a common good of humankind and therefore there is no good reason, at least prima facie, to exclude anyone from either its use or from the revenues generated by any mechanism for restricting access to it, is quite common among ECDs advocates (Edenhofer et al. 2015, p. 274, Marron and Maag 2018, Boyce 2019). A succinct formulation of the argument has recently been provided by Boyce et al. (2023, p. 1):

‘The foundation for our position is a basic ethical principle: we believe that the gifts of Nature should be shared in equal measure by all. These gifts include the right to a clean and safe environment – a right recognized in many national constitutions, the most fundamental of legal documents, worldwide […]—and the right to share in revenue that is generated by limiting the use of scarce resources’.

There are two questions to be asked about the common ownership of the atmosphere argument. The first question is which normative theories can provide a justification for common atmospheric ownership. The second question is whether the latter can in turn justify ECDs. I will argue that although at least three different normative theories, Lockean libertarianism, left-libertarianism, and isolationist egalitarianism, can support common atmospheric ownership (see Moellendorf 2011), none of them leads to the conclusion that we must pay carbon dividends to the rich.

2.1. The libertarian version of the common ownership of the atmosphere argument

Lockean libertarianism rests on a number of assumptions. First, natural resources are owned in common by humanity. Each individual has full self-ownership, which takes the form of the right to own, transfer, and be exempt from taxation in respect of the use of one’s own person (van der Vossen and Christmas 2023). Individuals can appropriate external objects, including natural resources, in different ways according to different accounts, one of which is Locke’s theory of labour. According to the latter, original appropriation can occur when people mix external resources with their own labour, provided that ‘there is enough and as good left in common for others’ (Locke 1988 [1690], II, §27) – the famous Lockean proviso or engrossment constraint (Nozick 1974, pp. 178–182, Dolan 2020).

The capacity of the atmosphere to absorb CO₂ is a system resource and, as such, subject to the norms described above (Bovens 2011, p. 130). More specifically, as long as the flow of anthropogenic emissions was less than the amount of CO₂ that natural carbon sinks, such as plants and oceans, could absorb, humans were not appropriating any of the atmosphere’s absorptive capacity. However, when humans began to collectively emit more CO₂ than carbon sinks could offset, a carbon budget was established. The latter indicates the amount of anthropogenic CO₂ emissions that can accumulate in the atmosphere consistent with a given global warming threshold (Morrow 2017). The important point here is that any mitigation target can be translated into a carbon budget in a probabilistic way, regardless of the approach used to set it and therefore the underlying value judgements. For example, we now know that the carbon budget compatible with the goal of limiting global warming to 1.5°C above pre-industrial levels is extremely limited, 250 GtCO₂ from 2023 with a 50% probability (see Lamboll et al. 2023). Of course, we do not know exactly when anthropogenic emissions began to exceed the carrying capacity of carbon sinks, leading to an accumulation of CO₂ in the atmosphere that progressively eroded the carbon budget, but we can guess that it was sometime immediately after the first industrial revolution (Mulhern 2020). For simplicity, I define this moment as industrialisation.

The fact that I ‘consume’ the carbon budget today does not prevent you or anyone else in the world from doing the same thing at the same time. However, there will come a time when an individual takes an emission-generating action X that exceeds the carbon budget. This action X will violate the engrossment constraint and is therefore not allowed. More precisely, from the time X is implemented, anyone who has activities that cannot be fully pursued and property that cannot be fully enjoyed without producing CO₂ will have suffered an interference with their property rights as a result of X (Christmas 2020). But if X is not permissible, then the action before X is not permissible either, and if the action before X is not permissible, then the action before the action before X is not permissible either, and so on, until we get back to the first emission-generating action immediately after industrialisation (see Nozick 1974, pp. 175–176). In response to this, one cannot simply argue that emissions-driven economic growth from industrialisation to X has provided benefits to humanity after X that outweigh the disadvantage of a carbon budget that runs out with X (see also Moellendorf 2011, pp. 107–108). For the choice for humans after X is either to stop emitting CO₂, which would mean giving up the exercise of a large number of property rights, or to exceed the mitigation target that is compatible (in probabilistic terms) with the carbon budget, which would mean imposing losses on others (and thus violating others’ property rights either to themselves or to external resources) that are inconsistent with the value judgments underlying the choice of mitigation target.

This does not mean that humans must refrain from emitting CO₂, or at least from emitting more CO₂ than can be offset by natural and technological means, but it does mean that they must obtain the consent of other stakeholders, i.e. all those who have a present or future interest in the use of the carbon budget. In theory, each stakeholder should have a say in whether and when to give consent to someone who wants to emit from industrialisation onwards. But it’s obviously impossible to do this at the individual level, both because of the global scope of the stakeholders involved, and because they don’t all belong to overlapping generations. The choice is therefore between abandoning negotiations on allowable emissions or relying on intermediaries.

I submit that the collective threat of a runaway climate justifies, from a non-ideal point of view, the intermediation of governments. Governments should agree on a common mitigation target and a carbon budget consistent with that target – as they did in the Paris Agreement, for example. Each government should then play two roles. First, to ensure that the emissions of its population are compatible with the mitigation target and therefore generally fall, especially in the case of developed and emerging countries – we can define these as sustainable emissions. Second, to ensure that those producing sustainable emissions compensate other stakeholders, present and future, for the violation of their property rights to their national share of the internationally negotiated carbon budget. We can say that those emissions that meet these two requirements are permissible from a Lockean libertarian perspective. Carbon pricing is an administratively simple way to enforce the two requirements, i.e. to induce people to reduce their emissions while paying a fee for unabated emissions (Dolan 2020). Since the population owns the national share of the carbon budget equally, regardless of income or wealth, ECDs are an equitable way to recycle carbon revenues at the domestic level.

Left-libertarianism starts from the same premises as Lockean libertarianism, i.e. common ownership of the Earth and full self-ownership, but sets different criteria for the acquisition of natural resources. Indeed, most left-libertarians argue that individual appropriation can be unilateral as long as the appropriator pays the competitive value of the appropriated resource to other stakeholders (Vallentyne et al. 2005). This means that if you and I appropriate the same piece of land, but you are much more productive than I am and therefore produce more fruit than it costs you to cultivate it, while I am lazy and unskilled and therefore fail in my agricultural enterprise, then we both have to pay the same amount to the other stakeholders, which we can, for the sake of simplicity, identify as the commercial value of the two equal pieces of land in question, regardless of what we manage to produce.¹

From a left-libertarian perspective, therefore, whoever emits CO₂ after industrialisation must pay other stakeholders the competitive value of the carbon budget quota used up (Moellendorf 2011, pp. 108–109), and this can take the form of a carbon price. The latter should correspond to the market value of an emission permit. If the aggregate demand for emission permits remains constant or increases, e.g. due to population growth, while the supply decreases due to the progressive tightening of the carbon budget, the price of emission permits is assumed to rise gradually. In any case, what interests us here is that, also for left-libertarians, common atmospheric ownership justifies recycling carbon revenues equally for all, through ECDs.

In short, there seems to be a valid justification for ECDs in both Lockean libertarianism and left-libertarianism. The problem, however, is that we have so far only focused on the justice in acquisition part of libertarian theory, without considering the issue of rectification that arises instead when justice in acquisition has been violated (Nozick 1974, pp. 150–153, Litan 1977). Given the non-ideal conditions under which the issue of carbon pricing arises today, i.e. where past and present persons have drawn unequally from the carbon budget, the demand for rectificatory justice makes the waste objection relevant.

Take the emblematic case of the US and look at the carbon footprint of the different income deciles in a given calendar year. In 2019, the average per capita emissions of the entire US population were around 21.1 tCO_2e. People in the lowest five income deciles, or the bottom 50%, emitted on average less than half the national average, or 9.7 tCO_2e per year. People in the sixth to ninth deciles, the middle 40%, emitted slightly more than the national average, 22 tCO_2e per year. In contrast, people in the top decile emitted more than three times the national average, 74.7 tCO_2e (Chancel et al. 2022, p. 128). Thus, the US rich, the top 10%, would have had to pay at least three times more than the middle class, the middle 40%, and more than seven times more than the poorer classes, the bottom 50%, to obtain the necessary legitimation for the emissions produced in 2019.²

If a carbon price were to be introduced in the US, and a decision had to be made about the use of carbon revenues, it would not be sufficient to point out that all US persons are equal owners of the US share of the global carbon budget; one would also have to take into account past violations of property rights in the carbon budget. In principle, we might want to account for carbon inequality since industrialization. However, given the difficulties of tracking class-based responsibilities and benefits for historical emissions, and the fact that many past emitters are no longer around and may not have been aware of the climate consequences of their emissions, we can simply focus on recent emissions (see Kingston 2014). For instance, most studies of carbon inequality that look at data from 1990 onwards – which is also the year of publication of the first IPCC report, after which excusable ignorance no longer applies – allow us to say that over the past 35 years the carbon footprint of the rich in the US has been consistently higher than the national average (Oxfam 2020, Chancel 2022, Chancel et al. 2022). And this follows a global trend. Suffice it to say that since 1990, the top 10% of the world’s population has cumulatively emitted more CO₂ than the remaining 90% (Oxfam 2020, p. 3).

We therefore have sufficient elements to say that at least those who have emitted CO₂ since 1990 have contracted duties of rectification, from both a Lockean and a left-libertarian perspective. At the same time, all those who have lived or will live after 1990 are entitled to compensation for the violation of their property rights in the atmosphere, a violation that translates into fewer opportunities for humanity to emit CO₂ consistent with a given mitigation target – I leave aside the parallel and more complex issue of compensation for harm caused by past emissions, which on a libertarian view must take the form of additional payments over and above carbon taxation (see Torpman 2022). To understand whether a person has a rectification credit or a rectification debt, individual calculations would have to be made. However, the huge disparity between the emissions of the top 10% and the rest of US society allows us to say that at least the former have a rectification debt. This debt now makes it illegitimate for the US government to pay the top 10% of US society a per capita share of the revenues from using the absorptive capacity of the atmosphere – the same reasoning could be applied to most countries in the world, or even globally (Oxfam 2023).

The argument based on recent emissions would seem to justify TCDs rather than ECDs, but a major challenge could be raised. All carbon dividends may be illegitimate because they do not take into account future stakeholders. The latter should be compensated for the use of the carbon budget by present people (Moellendorf 2011, pp. 110–115). This could mean, for example, that a significant proportion of carbon revenues should be paid into an intergenerational investment fund (Bhopal 2023). However, this intergenerational concern could be addressed by emphasising that the carbon budget is an important resource as long as humans need to increase the CO₂ concentration in the atmosphere to satisfy their needs. One of the purposes of carbon pricing is indeed to channel capital today into investments in climate change mitigation technologies and solutions that will make society much less carbon intensive in the future. In a hypothetical low-carbon society with a certain margin of negative emissions, the absorptive capacity of the atmosphere will no longer be a scarce resource, and therefore future people could not say that they have suffered a distributive disadvantage because of the use of the carbon budget in the past. Instead, future people could claim to have suffered climate damage as a result of past emissions. But that is a matter of compensation for loss and damage, which I do not address here, and which may well justify different forms of redress.

2.2. The (isolationist) egalitarian version of the common ownership of the atmosphere argument

The second version of the common ownership of the atmosphere argument for ECDs is based on the assumption that, unlike other natural resources, the atmosphere is a global common pool resource (Edenhofer et al. 2015). It is global in that it is beyond the domain of the state, and it is a common pool resource in that it is rivalrous, given the existence of a carbon budget, and initially non-excludable, given that unabated CO₂ emissions generally cannot be prevented from accumulating in it. Global commons are usually considered to belong equally to humanity. Therefore, if governments decide to intervene to regulate access to the atmosphere by requiring people to have a permit for emitting CO₂, there are pro tanto reasons why everyone should be given the same number of permits. This is because, prima facie, no one has a stronger claim on the use of the atmosphere than others (see Baatz and Ott 2017).

There are at least two ways to handle this (see Moellendorf 2011, pp. 115–116, Caney 2012, pp. 260–261). The first is the individual-based approach, whereby people are directly allocated their equal per capita share of the global carbon budget. Once the initial allocation has been made, it is up to people to buy and sell permits to ensure their efficient use. In this case, there would be a carbon price determined by the market interplay of supply and demand, but no government revenues and therefore no ECDs – there would only be bilateral transactions between buyers and sellers.

The second is the state-mediated approach, where the global carbon budget is allocated to countries in proportion to their population. Each country would then be free to manage its share of the global carbon budget as it sees fit. One possibility is to introduce a carbon tax trajectory that is compatible with the country’s share of the global carbon budget (see also Torpman 2019, p. 759) – this would indeed be a cost-effective way of managing emission permits. Unlike the individual-based approach, the state-mediated approach allows governments to generate revenue from emission permits. Since all citizens have an equal share in the country’s share of the global carbon budget, the government’s revenue must be distributed equally among the population in the form of ECDs.

However, this overlooks the fact that, as mentioned before, the rich have so far used up far more of the carbon budget per capita than anyone else without paying for it. This applies not only to the global population, but also to individual countries. To take another example, in France in 2019, the richest 10% of the population emitted almost three times more greenhouse gases (GHGs) than the middle 40% and almost five times more than the bottom 50% (Chancel et al. 2022, p. 128). Some advocates of emissions egalitarianism argue that the allocation of permits must be history-sensitive, i.e. that unequal emissions in the past are a valid reason to deviate from an equal distribution of permits today (Neumayer 2000, Torpman 2021, pp. 363–366). For example, in the state-mediated version, history-sensitive emissions egalitarianism would say that, for the same population, a country that polluted more in the past is entitled to use a smaller share of the global carbon budget today than a country that polluted less.

The main objection usually raised by those who believe that past emissions should be left out of the climate justice discourse is that present people cannot be held responsible for emissions that they did not directly cause, nor for emissions that they caused in excusable ignorance of the causal link between atmospheric CO₂ concentrations and global warming (see Kingston 2014). However, as noted above, even if this objection were valid, it loses much of its force after 1990, when many of today’s rich polluters were born and had the scientific information about climate change. This makes a version of emissions egalitarianism that is sensitive to recent history very plausible, according to which only post-1990 emissions must have an impact on the current distribution of emission permits (see also Risse 2012, pp. 198–206).

If we accept the recent-history-sensitive version of emissions egalitarianism, we have to draw two conclusions. The first is that, for the same population, France is now entitled to a smaller share of the global carbon budget than a country that has emitted less overall since 1990. The second is that since the rich French have emitted much more than other French since 1990, their individual share of the French share of the global carbon budget must now be much smaller than that of other social groups. This, in turn, means that the rich French have a much smaller stake than others in the revenues that the government collects from the sale of emission permits. In short, even on the most plausible version of emissions egalitarianism, the one that is sensitive only to recent history, ECDs are less justified than TCDs.

3. The rich-pay-for-themselves argument for ECDs

It is possible to propose a normative response to the waste objection against ECDs without postulating common atmospheric ownership. As noted in the introduction, in a classical carbon pricing + ECDs scheme, the rich pay more in carbon taxes than they receive back in carbon dividends, while the worst off receive more in carbon dividends than they pay in carbon taxes. Since the rich, unlike the worst off, would overpay for their carbon dividends, there is no good reason why these dividends should not also be paid to the rich, the argument goes, provided that the carbon dividends left for others are sufficient to meet both the regressivity and the basic needs objections. Indeed, the purpose of the carbon price is not to redistribute wealth, but to mitigate the climate crisis in a way that does not exacerbate inequality and/or worsen conditions for the poor.

What we might call as the rich-pay-for-themselves argument is usually raised by advocates of unconditional cash transfers, such as Universal Basic Income (UBI), as opposed to means-tested welfare schemes. In fact, if the UBI is financed by progressive taxation, the share of UBI received by the rich is fully paid for by their taxes, while a significant share of UBI received by the worst off is paid by the rich. If we consider as legitimate the distribution of income, and more generally of wealth, as it results from market interactions and is then corrected by progressive taxation, the rich may find it unfair to pay what they owe to the contributory part of a universal provision such as UBI, only to be excluded from the redistributive part (see Maskivker 2018, pp. 206–207).

Admittedly, one could use distributive justice arguments to question the legitimacy of pre-tax income and thus argue against the universal character of UBI (see Murphy and Nagel 2004). For example, it could be said that it is unfair for a CEO to be paid thirty times more than an employee in the same company, or for a person to receive a very high income from renting out an inherited property. If the distribution of pre-tax income is unfair, we cannot use it as a baseline against which to judge whether the redistributive effects of UBI are more or less fair. However, this would require further philosophical work and, above all, would lead to disputes between people with different views on distributive justice.

There is fortunately a much more straightforward response to the rich-pay-for-themselves argument in favour of ECDs. As we have said, proponents of this argument may wish to insist that a normative analysis of carbon pricing should focus simply on whether this policy instrument fairly distributes the benefits and burdens of climate action, in isolation from the more general discourse on distributive justice. But if this were the case, then the normative analysis cannot treat all actors neutrally, as in the case of a natural disaster, where no one is more to blame than the others, but must instead question the backward-looking responsibility of each, at least as far as the recent past is concerned.

Over the past 35 years, the emissions of the lower and middle classes in developed countries have fallen as a result of falling incomes, rising inflation and climate policies (Chancel et al. 2022, pp. 124–125). On the contrary, emissions from the richest 10% of the world’s population have gradually increased, to the point where Oxfam (2020, p. 3) estimates that between 1990 and 2015 the richest 10% of the world’s population collectively emitted more than the bottom 90%, and that they alone consumed a third of the carbon budget compatible with the 1.5°C mitigation target over the same period. Low-income communities are among the main victims of accumulated CO₂ emissions and related pollution, both because they are more exposed to the risks of climate change and because they have less capacity to adapt. In fact, due to a lack of economic resources, the poorest people tend to live in dwellings that are more vulnerable to extreme weather events, with little insulation and poor air conditioning, and very often in neighbourhoods that are closer to polluted areas (EPA n.d.). They have less financial capacity to recover when climate hazards cause damage, both physical and economic. In addition, low-skilled workers are most at risk of losing their jobs as a result of ambitious climate policies (OECD 2023).

It is therefore very difficult to argue that by paying carbon taxes in excess of ECDs, the rich are simultaneously subsidising the poor and paying for their own carbon dividends. Rather, it should be said that the poor, who for the past 35 years have maintained average per capita emissions not far from, and in some cases below, those compatible with the 1.5°C mitigation target, are now being asked to bear the costs of tackling a climate crisis to which they have only marginally contributed – suffice it to say that if the bottom 90% of the global population magically disappeared today, the emissions of the richest 10% alone would be enough to burn through the 1.5°C carbon budget shortly after 2030 (Oxfam 2020, p. 3). On the contrary, the rich, who have emitted much more over their lifetimes, are less exposed to both the risks of global warming and the backlashes of the climate transition. The carbon footprint of the rich makes the poor net victims of climate injustice. This means that the payment of ECDs to the rich cannot be defended by appealing to the supposed unfairness of their net positive contribution to climate action.

4. The consequentialist argument for ECDs

Even if proponents of ECDs concede that recycling carbon revenues to the rich is unfair, they can still offer the following consequentialist justification for ECDs. Global CO₂ emissions show no significant signs of decreasing. A worsening of the climate crisis would hit the worst off hardest. The rich control much of the economic and political power, so it is illusory to think that we can introduce and sustain an ambitious carbon price without their support (Broome and Foley 2020, pp. 3–4). Therefore, if including the rich in the mechanism for recycling carbon revenues can increase the chances of carbon pricing reform and/or reduce the time needed for it, then carbon pricing + ECDs is mostly in the interests of the worst off. Moreover, the exclusion of the rich from carbon dividends may entail large information costs, which could significantly weaken the waste objection to ECDs, at least from a consequentialist perspective. Both social acceptability and information costs are relevant concerns, as they are commonly used to defend UBI proposals as preferable to means-tested welfare alternatives from a consequentialist perspective (see Gelbach and Pritchett 2002, Ravallion 2017).

Would a carbon price be more socially acceptable if it were accompanied by ECDs rather than TCDs? There seems to be a gap in the literature in this regard. Most studies focus on whether ECDs are more or less acceptable than other revenue recycling options, whether neutral, such as reductions in taxes on labour and/or capital, or positive, such as investments in green projects or simply increased social spending (Carattini et al. 2019, Klenert et al. 2018, Mildenberger et al. 2022, Steenkamp 2021, Schaffer 2023). Instead, there is little data on whether and to what extent ECDs are more socially acceptable than TCDs. However, some research and general considerations suggest that ECDs may have significant advantages over other uses of carbon revenues in terms of social acceptability, but not over TCDs.

In general, the advantage of carbon dividends over positive uses of carbon revenues that instead aim to increase the size of the government budget is both epistemic and trust-related. Telling a person from one of the lowest income deciles that their economic sacrifices due to the carbon tax will be more than compensated by a cash transfer at the end of the year, or even better, at the end of the month, immediately allows that person to understand that they will not be a ‘loser’ of the carbon tax reform (see Schaffer 2023, pp. 4–5). This has a number of political benefits, as it prevents opponents of carbon tax reform from using regressivity and basic needs objections in the public debate. Of course, the issue here is largely epistemic rather than substantive. It is indeed possible that if carbon revenues were instead spent by the government on strengthening services and investments in favour of the poor, the latter might experience a greater increase in welfare than that induced by carbon dividends. But in the case of a positive use of carbon revenues, it would be very difficult for a person to know whether they would end up being a winner or a loser. Carbon dividends are an unparalleled epistemic shortcut. Moreover, in many countries, citizens have little trust in governments to act in the interests of the worst off (Klenert et al. 2018, p. 672). This may be due, for example, to high levels of corruption, poor quality of administrative services, the influence of certain lobbies, and so on. In these circumstances, the positive use of carbon revenues is a very risky bet for the poor. In general, we can say that the less citizens trust the government, the stronger the case for carbon dividends.

For the reasons outlined above, ECDs may also be preferable to other possible neutral uses of carbon revenues, such as reducing labour taxes – which, at least in theory, could benefit the most disadvantaged. First, it is easier to understand whether carbon dividends, rather than lower labour costs, will be sufficient to offset the carbon price burden. Second, not all people with an income are employed and/or interested in employing others, and in many countries a large proportion of the population works in the informal sector. Third, a commitment to pay a certain amount of money over a certain period of time may be seen by many as a firmer commitment by a government than a more ambitious labour tax reform, which could be changed by new political majorities, among other things.

The crucial question, then, is which (if any) of the pragmatic benefits of ECDs outlined above, which are certainly relevant in a consequentialist evaluation of public policy, would be lost in a shift to TCDs. We can assume that the rich, like everyone else, would prefer to have more money rather than less, other things being equal. However, a number of considerations suggest, at least in my view, that not all the benefits of social acceptability usually associated with ECDs would be lost with TCDs.

On the one hand, with ECDs, the rich are still the losers in the carbon tax reform. Consider, for example, Gilbert Metcalf’s (2019) simulation of a uniform carbon tax in the US starting at $49 in 2019 and rising to $70 in 2028. According to Metcalf’s data analysis, the poorest of the rich in the US population, i.e. those between the richest 5% and the richest 10%, would lose on average 1.8% of their income as a result of carbon pricing (Metcalf 2019, p. 94). The distribution of equal per capita rebates mitigates this loss by less than half a percentage point (Metcalf 2019, p. 96). Thus, on the one hand, excluding the US rich from the rebates would not change their relative position, as they would remain the de facto losers of the carbon tax reform. On the other hand, we could say that the rebates may be beneficial but still not decisive in the life of a rich US citizen – I deliberately focus on the poorest among the rich because I imagine that for those between the richest 5% and 1%, the income variation induced by ECDs is almost irrelevant.

On the other hand, denying carbon dividends to the rich means that there is room to increase the carbon dividends to be paid to everyone else. And it is conceivable that recycling to the non-rich what would have been paid to the rich under the ECDs proposal would have a non-negligible effect on the former, especially the most disadvantaged. This could help to make many of the non-rich much more loyal to the idea of a carbon tax reform than the failure to include the rich in the recycling of carbon revenues would cool the rich down.

In summary, receiving carbon dividends may please the rich and make them more open to a carbon price. However, redirecting carbon dividends from the top 10% to everyone else may prove to be, on the whole, a no less valuable investment in the social acceptability of carbon pricing. Therefore, there does not seem to be a decisive argument that ECDs have a significant advantage over TCDs in this respect.

Cost considerations, however, require a different response. For even if denying carbon dividends to the rich has no significant effect on people’s attitudes towards the carbon price, monitoring the income of the population to exclude the rich from carbon dividends may entail such high administrative costs as to be unjustified, at least from a social welfare perspective. However, although cost considerations are central to the debate about UBI versus means-tested transfers, they are of little relevance where the carbon price fits into a context where means-tested monitoring already exists for the provision of social services, as is the case in most countries around the world. If we already know who is among the top 10% of the population, and we already have monitoring and sanctioning mechanisms in place, then the shift from ECDs to TCDs does not entail significant information costs (see also Maskivker 2018, pp. 207–208).

Conclusions

In this article I have argued that none of the possible normative arguments in favour of recycling carbon revenues in the form of carbon dividends justifies paying them to the rich. On the one hand, arguments based on natural rights and equality must necessarily take into account the backward-looking responsibility of the rich for the climate crisis we face. On the other hand, consequentialist arguments fail to take into account that redirecting carbon dividends from the rich to the poor may be no less socially acceptable, and in some cases even more so, at no net overall cost. This is why I have defended a particular version of what I call Targeted Carbon Dividends (TCDs), which differ from Equal Per Capita Carbon Dividends (ECDs) in that the richest income decile of the population is excluded from the recycling of carbon revenues.

My arguments are normative only. Indeed, it is possible that in specific social contexts, addressing the waste objection requires a narrower version of TCDs, e.g. one that excludes only the richest 1% of the population from recycled revenues, or a broader one, e.g. one that goes so far as to exclude not only the richest decile, but also the decile immediately before it, and so on. Moreover, a range of non-normative considerations could play a role in the democratic choice of the right system for recycling carbon revenues. For example, it might be relevant to look at how other jurisdictions have chosen to use carbon revenues and try to achieve some homogeneity where possible, if only to avoid incentivising some of the rich to move to take advantage of different uses of carbon revenues.

The interplay between normative and non-normative considerations in policy making is tricky. The only point I want to make is that, however one deals with the waste objection, it cannot be dismissed by appealing to the three normative arguments discussed above. Of course, this does not preclude that non-normative arguments can be made in favour of a use of carbon revenues that differs, even in part, from the one defended here. How to balance the different types of considerations, normative and non-normative, that play a role in decisions on the use of carbon revenues is beyond the scope of this article and requires further research.

Acknowledgments

I gratefully acknowledge financial support provided to the Financial Ethics Research Group at University of Gothenburg, in particular from Vinnova (Sweden’s innovation agency) for the Sustainable Finance Lab, and from Mistra (the Swedish Foundation for Strategic Environmental Research) for the Finance to Revive Biodiversity program (Mistra FinBio). I am also very grateful to two anonymous reviewers for their suggestions and recommendations.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. I am considering here left-libertarianism in its most common version, the so-called Georgist version, named after Henry George, and not alternative versions which instead require the more or less explicit consent of the other stakeholders in order to proceed with the acquisition (see Vallentyne 2000, pp. 1–10). These other forms of left-libertarianism are, in fact, simply impracticable in cases such as that of the atmosphere we are examining.

2. Both here and in the rest of the article, I take into account both consumption and investment emissions. I should also point out that the average income of people in the top income decile of a country can vary widely in absolute terms from country to country. For example, the average annual wage for people in the top income decile in the US is around USD 167,000 per year (Gould and Kandra 2022). By contrast, the average annual income of the top 10% of the global population is around PPP€ 87,000 (Chancel et al. 2022, p. 28).