California Ties Cash to Energy

By REBECCA SMITH and KEITH JOHNSON

California might start paying people to cut their energy use.

On Monday, a state panel proposed that the lion's share of new fees California plans to impose on greenhouse-gas emissions should be returned to consumers in the form of annual dividend checks that eventually could exceed $1,000 for a family of four.

The proposal is part of an effort to find the most efficient way to change consumer behavior. The panel argues that higher prices will drive consumers to use less of the fossil fuels that produce greenhouse gases.

At the same time, lawmakers plan to compensate for the pain inflicted on households by higher energy prices. They will use most of the money collected from the new fees to pay dividends to consumers -- regardless of their energy spending. Consumers would benefit the most financially if they dramatically reduced their fuel bills.

Although federal climate-change legislation appears to be at a standstill, California is forging ahead with implementing its own law. The state plans to essentially tax emissions and fuels that produce them when burned. Emitters will have to purchase carbon allowances after 2012.

One of the big questions is whether California's climate efforts, in the absence of federal legislation, will act as a brake on economic growth in the state. Some business groups fear that higher energy prices will force industry and jobs to leave the state. Some consumers also oppose the measure's higher prices and potential drag on the economy.

Proponents argue action is needed to prevent an environmental disaster and contend that everyone will benefit from an increase in renewable energy.

Robert Stavins, director of Harvard's Environmental Economics program, said the California approach addresses many of the concerns surrounding climate-change legislation, such as the fact that energy taxes fall heaviest on poorer people. But he noted that a cap-and-dividend approach would be more costly than another option favored by many economists: to use proceeds from auctioning emissions permits to cut taxes on labor and capital.

California's approach contrasts with federal bills under consideration. A House bill passed last June returns most of the revenue from emissions-permit sales to power companies, rather than directly to consumers, in a bid to cushion the blow of higher energy expenses. A Senate bill introduced in December proposes a cap-and-dividend approach such as California appears to be taking.

The plan to offer California consumers a payback is an offshoot of the state's 2006 climate law, the Global Warming Solutions Act.

A 16-member panel, the Economic and Allocation Advisory Committee, is charged with figuring out the simplest, most cost-effective way to design the program.