The case for Carbon Dividends
in New Zealand

A fair, sustainable and efficient climate policy

Citizens' Climate Lobby was established in the United States in 2007 to promote solutions to climate change. In New Zealand Citizens' Climate Lobby focuses on a solution called the Carbon Dividend policy.

Carbon pricing is a necessary tool in the fight against climate change. It works by making high emission activity more expensive relevant to lower emission alternatives. Carbon pricing ensures that part of the true cost of greenhouse gas emissions is recognised in the price of goods and services, helping to correct the ‘biggest market failure of all time’: climate change.

New Zealand already has an established form of carbon pricing: namely, the emissions trading scheme (ETS). The ETS imposes a cost on some of New Zealand’s greenhouse gas emissions. It provides an incentive to reduce those emissions, and a disincentive to increasing them.

The government earns revenue from the ETS. The Carbon Dividend policy would require all or part of the ETS revenue received by the government to be returned to the population as a pro-rata dividend by regular direct payments.

The advantages of the Carbon Dividend policy are:

Good for People: the Carbon Dividend more than compensates most households for the costs they incur due to the ETS, meaning that the majority of households are financially better off as the carbon price increases.

Good for the Economy: modelling shows that a Carbon Dividend improves overall economic wellbeing when measured by real gross national disposable income.

Fairer: the Carbon Dividend benefits lower income households the most, relative to their incomes, correcting the current tendency for the ETS to place a disproportionate burden on lower income households. The allocation of carbon revenue to Carbon Dividends would also prevent the intensive lobbying by vested interests that could be expected if the allocation were more discretionary.

Sustainable: to stop climate change, carbon prices are going to have to increase. Because Carbon Dividends make most people better off, they also make higher carbon prices more sustainable politically. Probably the main reason politicians around the world have so far not taken adequate steps to halt climate change is because they don’t want to make voters worse off. The Carbon Dividend reverses that situation by making most people better off, and so gives politicians a mandate to take effective action.

Well supported by research and experience

Citizens’ Climate Lobby NZ has commissioned Infometrics to undertake a study of Carbon Dividends in New Zealand. The study can be viewed here.

Although Carbon Dividends have not yet been implemented in their pure form, the idea of recycling carbon revenues to the population is not new. For example the Swedish carbon tax was introduced in substitution for an existing tax; in the Canadian provinces of British Columbia, Alberta, Saskatchewan, Manitoba and Ontario carbon revenues are refunded through the tax system; and in Switzerland carbon revenues are refunded as a discount on health insurance premiums. Sweden has maintained the highest carbon price in the world, and all of the other jurisdictions mentioned have maintained higher carbon prices than New Zealand (as at 1 April 2021).

In Canada the federal government has proposed implementing a true Carbon Dividend with direct payments in Alberta, Saskatchewan, Manitoba and Ontario from 1 July 2022. The Canadians are clearly confident in the policy because they have announced a 2030 carbon price of C$170 per tonne CO2e.

There are numerous studies looking at the benefits of carbon revenue recycling (such as Carbon Dividends) for the political sustainability of carbon pricing.1 Another form of revenue recycling that some of those the studies show has widespread support is investment in renewable energy R&D and infrastructure, but that type of spending does not address the fairness aspects of carbon pricing so there is a strong case for a substantial allocation of carbon revenues to a Carbon Dividend, even if some revenue is allocated for other purposes.

A recent study of the Canadian (tax credit) and Swiss (health insurance) rebate systems has found that the amount of the rebate is not well understood,2 which suggests that the Carbon Dividend policy of direct cash payments (where voters can see the payments in their bank statements) is more likely to generate popular support than a tax credit or insurance rebate method of revenue recycling, where refunds are disclosed on forms that many people would not closely scrutinise.

Why we need a policy that can sustain a higher carbon price

There are several reasons why New Zealand should prepare its policy framework to sustain higher carbon prices than are currently anticipated:

Trade: the EU is working on implementing carbon border adjustments, where amounts will be charged on imports from countries that do not have sufficiently high carbon prices. Such a policy could effectively impose a minimum carbon price on the New Zealand economy from afar.

The Problem of Forestry: while New Zealand could place heavy reliance on exotic afforestation to reduce its net emissions, that would be a mistake. It would not address the underlying problem of gross emissions and afforested land only absorbs large amounts of carbon for around 21 years, requiring ever increasing amounts of land to be converted to permanent exotic forest. The strategy could fail completely if a disease were to destroy our exotic forests, as we have seen with kauri dieback disease, Dutch elm disease, the huge loss of ash trees occurring in Europe, and the plague that is ravaging olive trees in Italy caused by Xylella, which can kill over 150 species of tree and is spreading in Europe. The IPCC’s pathways to keeping global warming to 1.5˚C all require CO2 removals, so afforestation should be used for removals of unavoidable emissions, not as a substitute for reducing gross emissions, which other countries will have to do. Reducing reliance on forests will require the carbon price to exceed current estimates.

The Cost of International Credits: New Zealand’s current plan is likely to involve the purchase of overseas carbon credits, even though the previous system for trading international credits collapsed due to widespread fraud and abuse. Onshore mitigation of carbon emissions is achieved by switching our infrastructure investment towards low carbon technologies. It would be a permanent loss to the New Zealand economy if we instead chose to continue investing in the wrong type of infrastructure while we send money overseas that could have allowed our economy to pay for the low emission infrastructure. Reducing our reliance on international credits will require a higher carbon price.

Delayed Action: past experience suggests that worldwide effective action against climate change will be deferred beyond currently assumed pathways so that higher carbon prices will be required than are indicated by modelling that assumes effective action is taken quickly.


The Carbon Dividend policy offers New Zealand the opportunity to improve the fairness and political sustainability of the ETS, regardless of how high the carbon price needs to be in the future, as well as making most people financially better off and improving our economic wellbeing.

1. Amdur, D., Rabe, B. G. & Borick, C. P. Public views on a carbon tax depend on the proposed use of revenue. Issues Energy Environ. Policy 13, 1–9 (2014).
Beiser-McGrath, L. F. & Bernauer, T. Could revenue recycling make effective carbon taxation politically feasible? Sci. Adv. 5, eaax3323 (2019).
Bristow, A. L., Wardman, M., Zanni, A. M. & Chintakayala, P. K. Public acceptability of personal carbon trading and carbon tax. Ecol. Econ. 69, 1824–1837 (2010).
Carattini, S., Baranzini, A., Thalmann, P., Varone, F. & Vöhringer, F. Green taxes in a post-Paris world: are millions of nays inevitable? Environ. Resour. Econ. 68, 97–128 (2017).
Carattini, S., Kallbekken, S. & Orlov, A. How to win public support for a global carbon tax. Nature 565, 289–291 (2019).
Douenne, T. & Fabre, A. Yellow vests, pessimistic beliefs, and carbon tax aversion. Am. Econ. J. Econ. Policy (in the press).
Gevrek, Z. E. & Uyduranoglu, A. Public preferences for carbon tax attributes. Ecol. Econ. 118, 186–197 (2015).
Jagers, S., Lachapelle, E., Martinsson, J. & Matti, J. Bridging the ideological gap? How fairness perceptions mediate the effect of revenue recycling on public support for carbon taxes in the United States, Canada and Germany. Rev. Policy Res. (2021)
Kotchen, M., Turk, Z. & Leiserowitz, A. Public willingness to pay for a US carbon tax and preferences for spending the revenue. Environ. Res. Lett. 12, 094012 (2017).
Nowlin, M. C., Gupta, K. & Ripberger, J. T. Revenue use and public support for a carbon tax. Environ. Res. Lett. 15, 084032 (2020).

2. Mildenberger, M., Lachapelle, E., Harrison, K. et al. Limited impacts of carbon tax rebate programmes on public support for carbon pricing. Nat. Clim. Chang. 12, 141–147 (2022).