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The Incidence of U.S. Climate Policy: Alternative Uses of Revenues from a Cap-and-Trade Auction

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  • Burtraw, Dallas

    (Resources for the Future)

  • Sweeney, Richard

    (Resources for the Future)

  • Walls, Margaret

    (Resources for the Future)

Abstract

This paper evaluates the costs to households of a carbon dioxide (CO2) cap-and-trade program. We find important variation in the distribution of costs of the policy across 11 regions of the country and income deciles. The introduction of a price on CO2 is regressive, but this may be outweighed by the distribution value of CO2 emissions allowances. We evaluate five alternatives: three are progressive (expansion of the Earned Income Tax Credit and cap-and-dividend approaches), while the others are neutral (reduction in payroll tax) or amplify the regressivity (reduction in income tax). Regional differences are most substantial for low-income households.

Suggested Citation

  • Burtraw, Dallas & Sweeney, Richard & Walls, Margaret, 2009. "The Incidence of U.S. Climate Policy: Alternative Uses of Revenues from a Cap-and-Trade Auction," RFF Working Paper Series dp-09-17-rev, Resources for the Future.
    • Handle: RePEc:rff:dpaper:dp-09-17-rev
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    References listed on IDEAS

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    More about this item

    Keywords

    cap-and-trade; allocation; distributional effects; cost burden; equity;
    All these keywords.

    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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