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Rural Alaskans could see boost from carbon cutting program, study says

  • Author: Asaf Shalev
  • Updated: September 28, 2016
  • Published September 8, 2015

Most rural Alaska households would benefit financially from a proposed national program designed to increase energy efficiency and move away from fossil fuels by charging a fee for carbon and returning dividends to households, a recent study by the University of Alaska Anchorage found.

Under the proposed "carbon fee and dividend" plan, all American households would pay extra for heating, electricity, transportation and other uses of energy in which heat-trapping carbon dioxide is a byproduct. To prevent the proposed plan from being punishing, especially to low-income households, the revenue collected would be distributed back to residents on the basis of household size. The dividend to Alaska residents of the Arctic would exceed the cost of the carbon fee, said the study that was released Wednesday, coincidentally, on the same day President Barack Obama announced federal "climate resilience" funding for the Arctic.

The plan, a market approach with some bipartisan support but also opposition in Congress, would bring an estimated $900 in net income for rural Alaska households of four or more in 2016, increasing to more than $3,600 by 2025. For small households of one or two people, carbon dividends would also exceed the higher cost of living.

The UAA report examined data on energy use and census data on household size in the remote Alaska communities of Bethel Census Area, the nearby Kusilvak Census Area, and the Northwest Arctic Borough. Kotzebue – a stop on Obama's tour of Alaska – was among the communities examined.

Because rural Alaskans pay the highest price for energy in the country, it was important to consider how they would fare under a program that placed a new cost on carbon, said study author Steve Colt, a professor of economics at the University of Alaska Anchorage's Institute for Social and Economic Research. Citizens' Climate Lobby, a national advocacy group promoting the climate fee and dividend idea, initiated and helped fund Colt's study.

The idea has been "kicking around among academics and policy wonks for a long time," Colt said, but until now there was no "accurate data about how people are going to fare" under the conditions in rural Alaska.

Those conditions include high prices – fuel cost $6.62 per gallon in January, 2015 – cold winters, and, typically, lower incomes. As a result, Colt said, rural Alaskans already use less energy compared to Americans on average.

Still, there's room for improvement in rural Alaska. Not all houses are well insulated, and inefficient diesel generators provide much of the power. "We all want to accelerate the process for rural Alaskans to become more efficient and less reliant on fossil fuels," Colt said.

The carbon fee and dividend program proposes a fee of $15 per metric ton of carbon dioxide produced in energy consumption. That translates to 12 cents to 15 cents extra per gallon of fuel, depending on the type. After the first year the fee would increase by $10 annually.

Because hospitals, schools, government buildings, stores and other businesses would also pay the carbon fee, the extra costs incurred by those institutions may be passed indirectly to local residents through higher charges, taxes and prices. The UAA study takes these costs into account.

The dividend would be paid out to households at a rate estimated at $300 per adult and $150 per child for up to two children. Those sums are based on projections calculated last year by the private firm Regional Economic Models Inc.

Dividend payments to Alaska households in the study area would total $5.9 million the first year, which would be $2.2 million more than the cost of the fee. "Given the data we have, people in rural Alaska would fare well," Colt said.

For Citizens' Climate Lobby, the study resolves some concerns that even if its program works on a national scale, it could hurt vulnerable communities.

"These studies keep validating that if all of the revenue from a carbon fee is sent back to households it more than mitigates any increase in costs," said Mark Reynolds, the group's executive director.

He is hoping the study might nudge Republican leaders in Washington, notably Sen. Lisa Murkowski, to consider the carbon fee and dividend program as a market-based alternative to regulatory action against carbon emissions such as the U.S. Environmental Protection Agency's Clean Power Plan.

"I hope Sen. Murkowski wants to use (this study) to try and take leadership on the issue," Reynolds said. As a Republican, "Murkowski is uniquely positioned to introduce legislation. I don't think she is seen as particularly partisan."

Citizens' Climate Lobby commissioned the Alaska study in response to concerns that had been raised last year by Murkowski on the impact of a national carbon fee and dividend program in rural Alaska.

The senator was on a camping trip and unavailable to review and respond to the study, but her staff expressed skepticism she would support placing a tax on carbon.

"Sen. Murkowski has not traditionally supported programs that raise the cost of energy for Alaskans who already pay the highest energy costs in the nation," said Robert Dillon, her chief spokesperson on energy issues. "Whether all Alaskans are going to get their money back is a question."

Dillon also said that since Alaska is a "small voting bloc," there's a risk the dividend would be diverted once in Washington coffers. "There's no study that is going to guarantee the program will be enacted as it was first laid out," he said.

Still, he wouldn't "close the door" on the program, he said, adding that Murkowski's office is still reviewing the report.

One important caveat found in the study is that while most residents would get more in dividends than they would pay in fees, a minority would not. "That is a concern with every kind of assistance program," Colt said.

The study, he said, used the most detailed information available about individual households when possible rather than calculating average results.

"I wanted to get away from the notion that there's an average household," he said. "That's a dangerous assumption to base policy on. In fact, the effects are going to be very different for different households."

He described his study as "one step" in the right direction. The next step would be "a household survey about what it's like to live in the Arctic," similar to one done in 2007. The survey would focus on energy use, energy cost, and include information on local residents such as their household size and what challenges they face. Then, economists could know more about the people who would be financial losers in the proposed carbon plan.

"If we had more data, we could be a lot more certain about how many people fit into that category," he said.

It would take more than additional studies in order to move the program forward. The Obama administration is occupied with its major carbon-cutting initiative, the Clean Power Plan, and on the Hill, there's a lack of enthusiasm for any carbon tax.

But advocates such as Alaska resident and commercial Yukon River fisherman George Donart continue to push. Studies such as Colt's "raise the level of discussion," Donart said.

"(The studies) show that if we instituted a fee, we could do something about climate change and it will not tank the economy," he said. "Certainly with the levels of poverty and the difficulty of maintaining infrastructure in rural Alaska, the hope is (political leaders) would opt for a market-based solution."

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