Distributional issues in climate policy: air quality co-benefits and carbon rent

The case for (and against) climate policy typically is made on grounds of inter-generational equity, assuming that there is a tradeoff between future environmental well-being and present economic well-being. This framing of the problem ignores the potential to design policies that mitigate climate change while yielding net benefits for most people who are alive today. This chapter considers two ways that climate policy can bring substantial benefits to the present generation: (i) air quality improvements from reduced burning of fossil fuels; and (ii) recycling of the rent created by carbon pricing. Both of these entail important issues of intra-generational equity.