A Carbon Tax to Combat Climate Change and Support Low-Income Households
Summary
Putting a price on carbon is fundamental to achieving U.S. climate goals for 2050. Many options for carbon price-setting exist, and in this policy brief we propose a tax-and-dividend approach that mitigates the challenging impacts that carbon policies have on poor and suburban/rural communities, particularly those in Middle America. Such a plan will be a net gain for low-income households, in contrast to other proposed climate change policies which will adversely affect the poor. Furthermore, it has been shown that even a modest carbon tax can have large benefits in terms of cost-effectiveness.
For that reason, we propose the following:
- Introduce a carbon tax-and-dividend plan as part of any federal climate policy.
- Use revenue to offset impacts on low-income households, taking into account enormousregional disparities.
- If political dynamics favor regulatory standards, consider coupling such standards with amodest carbon tax whose revenue can be used to offset their regressive effects.
Western states functionally manage trillions in global climate risk (permafrost, forest carbon, etc.) and can do so in ways that drive state economic development.
Implementation will not be easy. Several of the plan’s critical strategies challenge established utility business models.
We won’t solve the cost-of-living crisis without improving the capacity of state public utility commissions to protect customers, find and implement new solutions to meet rising demand, and realign broken utility incentives.
Public service commissions should require utilities to quantify avoided healthcare costs, reduction in pollution exposure, and improvements in population health alongside traditional metrics.