The Idea Incubator/Carbon Dividend as Carbon Offset

Carbon dioxide and methane are greenhouse gases that contribute to global warming. It is important to reduce emissions of these greenhouse gasses. Many corporations have announced goals to reduce carbon emissions substantially over the next few years and decades. Because this is often difficult to do directly, many organizations are turning to carbon offsets to compensate for their on-going emissions as they work to make direct progress toward their goals.

A carbon fee and dividend system charges a fee on the sale of fossil fuels (to compesate for the negative externalities) and then distributes the revenue collected from this fee over the entire population (equally, on a per-person basis) as a monthly income or regular payment. Although several economic studies have supported such a system, few countries have achieved the political will to enact such legislation.

Establishing a private system to collect carbon fees and distribute these funds as a dividend would allow companies to voluntarily choose to offset their negative externalities by paying the carbon dividend. This provides an alternative to traditional carbon offsets.  

If the fee paid is equivalent to the social cost of carbon, then this dividend will provide an accurate and effective carbon offset mechanism.