2. The Sky Trust: A Brief Overview²

In brief, under the Sky Trust proposal carbon emissions are limited upstream (i.e., where carbon enters the economy), which has the same effect as limiting the supply of fossil fuels. However, rather than resulting in higher prices that produce windfalls to energy producers (as did the OPEC limitations on fossil fuels in the 1970s), the Sky Trust framework then "recycles" the rent from the limited supplies to all citizens via a Trust dividend. Emission rights are given to the Sky Trust, which periodically sells them to producers and importers of fossil fuels in the form of tradeable allowances. The Sky Trust then distributes the resulting revenues back to its citizens.

Variations of this Sky Trust proposal have been presented in numerous forums discussing climate change issues and related legislation. Below is an excerpt from a 2001 study by the Congressional Budget Office (CBO) that illustrates the concepts very well:

"Under this proposal, domestic producers and importers of fossil fuels would be required to hold allowances equivalent to the amount of carbon dioxide that is eventually released from the fuels they sell. An emission target would be set at 1.346 billion metric tons of carbon, the amount emitted from fossil-fuel combustion in the United States in 1990. The government would sell allowances for that target through an auction and would set a price ceiling of $25 per allowance.... The government would initially use 75 percent of its auction revenue to make equal annual payments to each legal resident of the United States. The remaining 25 percent would be used to compensate regions, companies, or consumers adversely affected by the policy. For example, some of those funds could be targeted toward coal-mining regions that would suffer declines in local employment because of the policy. The portion set aside for compensation would be phased out over 10 years, after which all of the revenue would be used for lump-sum payments to U.S. residents."³

Although the Sky Trust has been presented and debated in the context of climate policy, it offers a useful incentive framework for utility energy procurement as well, with appropriate adaptation. Our initial thinking is outlined below.

² Suggested reading for more information on the Sky Trust concept: "Who Owns the Sky?" by Peter Barnes and background material available at: www.cfed.org/sustainable_economies/common_assets/index_skytrust.html.