The Hawaii Tax Review Commission recently recommended that Hawaii implement a carbon fee and dividend to reduce the burning of fossil fuels, which would in turn reduce the devastating effects of climate change. That is first on its list of recommendations. The commission is composed of citizens and is guided by the principles of equity, efficiency and adequacy.

Carbon fee and dividend was also the subject of two extensive studies conducted by the University of Hawaii Economic Research Organization (UHERO), which concluded that this model would be effective in reducing fossil fuel emissions. The state Legislature funded the first study by appropriating $150,000 for it.

The basic concept of the carbon fee and dividend model is simple. It rewards people who are low users of fossil fuels, and it penalizes high users. Notably, the study finds that the commission’s proposal would benefit most of Hawaii’s families financially. Although family expenses would increase because of a tax on fossil fuels, these families would also receive a monetary dividend. Most families would receive a larger dividend than the increase in their spending.

Whether a specific family experiences a net gain or a net loss — and the size of the gain or loss — depends on various factors. UHERO estimates that the lowest income quintile of households would experience an average initial net gain of $700 under the commission’s proposal.

Carbon fee and dividend assess a tax on importers and producers of fossil fuels. Most of the tax is expected to be passed down to consumers. The higher prices would discourage consumption, reducing fossil fuel emissions.

To understand what the effect higher prices would have, one can look at what happens when gasoline prices have increased in the past due to market forces. Consumption drops because many people find ways to reduce their driving. In the same way, the tax will reduce consumption of fossil fuels and thus reduce climate changing emissions.

However, that’s only half of the policy story. The commission’s proposal returns 80% of the revenues in equal shares in what they call a “cashback.” This monetary dividend makes the policy progressive rather than regressive. In fact, the great majority of low-income families would come out ahead financially.

The tax revenue can be thought of as a pot of money. Low users of fossil fuels put small amounts of money into the pot in the form of taxes. High users put large amounts into the pot. Despite the different amounts contributed, the pot of money is divided equally for distribution, so that each person or household gets the same amount. Low users get more than they put in, and high users get less than they put in. The methodology creates an incentive to reduce the use of fossil fuels.

Carbon fee and dividend bills introduced in the state Legislature in 2021 are still alive in this 2022 session, and others may be introduced. The bills vary somewhat in the tax rate on fossil fuels, and they vary greatly in the size of the monetary dividends. However, all bills can be amended to replicate the proposal made by the commission or carbon cashback scenarios analyzed by UHERO, thereby making these bills progressive and leaving the average low-income household with more money in their pocket.

Hawaii can demonstrate its continued national leadership on climate change. Hawaii was the first state to set a net zero carbon emissions goal, and the first state to declare a climate emergency. The 2022 legislative session began on Wednesday. Hawaii has the imminent opportunity to be the first state in the nation to pass carbon fee and dividend legislation.

Helen Cox Kalaheo is co-lead of the Citizens’ Climate Lobby’s Kauai Chapter; Susan Gorman-Chang is on Oahu Faith Action’s Environmental Justice Task Force.