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.