A Clear Blue-Sky Idea

05/25/2011 12:05 pm ET

Think of the energy that has been wasted in recent years calling for a gas tax. New York Times columnist Tom Friedman alone seems to advocate it every week or so. So does every other "responsible" energy plan. Only one problem: Not Gonna Happen. Look at the public furor over current gas prices that has Congress running for cover. The idea of adding a dollar-a-gallon tax at the pump is deader than Phil Leotardo in the final episode of The Sopranos.

But there is a way to slash emission of greenhouse gases that's politically practical. There's a way to both tell those Mideast countries to go drown in their damn oil -- and to begin to save the planet from catastrophic climate change. There's even a way to go green and go to the mall and buy a little something with your extra cash, as long as you take the bus or drive a hybrid there instead of a Hummer.

It's called a "sky trust" (or a "clean air trust" or "carbon revenue recycling") and it's roughly analogous to the Alaska Permanent Fund, which since 1976 has sent every Alaska resident a dividend check each year with a share of the state's oil revenues. The notion of a huge public trust begins with two simple ideas that have the potential to cut the Gordian knot on energy policy.

The first is that the atmosphere belongs to everyone. If you want to dump in it with your car or business, you have to pay the owners for the privilege, just as you would pay for the right to dump waste on someone's private property. The owner is us. This idea of the sky as a public "commons" is already well established in proposals for a "cap-and-trade" system of pollution permits and credits like those used in Europe for carbon and in the United States to dramatically reduce the problem of acid rain.

The second idea is the one you probably haven't heard about until now. The reason a gas tax or any other carbon tax is political poison is that people don't trust the government to spent their money wisely. (Sen. Chris Dodd, for instance, has proposed that the proceeds from a carbon tax be dedicated to fund alternative energy sources. Nice idea, and give him credit for guts not shown by the other presidential candidates. But it won't fly.) So instead of "taxes," think "charges" or "assessments." And instead of "government spending" or "tax breaks," think "dividend checks" every month, perhaps through debit cards. For you. For everyone. Think free money.

Sure, the government would like to get its hands on the hundreds of billions in annual revenues that would come from making people pay a surcharge to reduce greenhouse gases to Kyoto-mandated levels. But this is as impractical economically as it is politically, even if it came in the form of tax credits. "U.S. consumers will ultimately pay for carbon scarcity through higher prices, which will depress their purchasing power significantly," writes Peter Barnes, author of "Capitalism 3.0" and an important booster of the sky trust idea. "Dividends are a way to replenish consumer purchasing power and keep the economy from tanking."

Barnes has done the crude math of a sky trust: $300 billion in revenue divided by 300 million Americans comes out to $1,000 per person, though an elaborate model prepared by the MIT Joint Program on the Science and Policy of Global Change costs it out to as much as $4,900 per year for a family of four. Every American would receive the same, depending on the rate at which carbon was assessed. By giving all Americans equal dividends, the plan would ease the extra burden that higher carbon prices would place on the poor.

According to calculations by Barnes and by James K. Boyce of the University of Massachusetts, those earning more than $160,000 a year -- who have bigger cars and houses and thus use more energy -- would end up paying more in energy charges than they got back in dividends. Those earning less than about $45,000 would end up paying less, and with some extra cash in their pockets. And those in between would find it roughly a wash, though about 70 percent overall would make money on the deal. The country as a whole, of course, would be much better off. The planet, too. Boyce and a pair of UMass colleagues wrote an article in Energy Policy magazine last year explaining how a sky trust could work in China.

As with any carbon tax, industries like coal and trucking would scream. But Boyce has an idea for how to make the idea more politically acceptable. He would earmark 20 to 30 percent of the revenues in the early years for "transitional adjustment assistance" to industries that could be expected to lobby fiercely against any incentives to kick the carbon habit. This would help buy them off. Other potential inequities aren't as daunting as they seem. Those who drive the most and would be assessed the most also tend to live in low-density areas with lower cost-of-living, which means their dividend checks would go further.

A sky trust is win-win-win for the economy, the taxpayer and the environment. It uses market principles to put more money in people's pockets and reduce pollution simultaneously. So far, it's an idea just being talked about by academics and policy wonks. Many politicians are likely to react warily, in part because they wouldn't get their hands on all of the carbon-tax booty. But a sky trust feels ripe for a presidential candidate to grab and run with. Which one wants to save the world and give voters money at the same time?

Originally posted on Newsweek.