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Climate action with revenue recycling has benefits for poverty, inequality and well-being

Author

Listed:
  • Mark Budolfson

    (Rutgers University)

  • Francis Dennig

    (Yale-NUS College)

  • Frank Errickson

    (University of California
    Princeton University)

  • Simon Feindt

    (Mercator Research Institute on Global Commons and Climate Change (MCC)
    Technische Universität Berlin)

  • Maddalena Ferranna

    (Harvard University)

  • Marc Fleurbaey

    (Paris School of Economics)

  • David Klenert

    (European Commission)

  • Ulrike Kornek

    (Mercator Research Institute on Global Commons and Climate Change (MCC)
    Potsdam Institute for Climate Impact Research)

  • Kevin Kuruc

    (University of Oklahoma)

  • Aurélie Méjean

    (CNRS, CIRED)

  • Wei Peng

    (Pennsylvania State University)

  • Noah Scovronick

    (Emory University)

  • Dean Spears

    (University of Texas)

  • Fabian Wagner

    (International Institute for Applied Systems Analysis (IIASA))

  • Stéphane Zuber

    (Centre d’Economie de la Sorbonne)

Abstract

Existing estimates of optimal climate policy ignore the possibility that carbon tax revenues could be used in a progressive way; model results therefore typically imply that near-term climate action comes at some cost to the poor. Using the Nested Inequalities Climate Economy (NICE) model, we show that an equal per capita refund of carbon tax revenues implies that achieving a 2 °C target can pay large and immediate dividends for improving well-being, reducing inequality and alleviating poverty. In an optimal policy calculation that weighs the benefits against the costs of mitigation, the recommended policy is characterized by aggressive near-term climate action followed by a slower climb towards full decarbonization; this pattern—which is driven by a carbon revenue Laffer curve—prevents runaway warming while also preserving tax revenues for redistribution. Accounting for these dynamics corrects a long-standing bias against strong immediate climate action in the optimal policy literature.

Suggested Citation

  • Mark Budolfson & Francis Dennig & Frank Errickson & Simon Feindt & Maddalena Ferranna & Marc Fleurbaey & David Klenert & Ulrike Kornek & Kevin Kuruc & Aurélie Méjean & Wei Peng & Noah Scovronick & Dea, 2021. "Climate action with revenue recycling has benefits for poverty, inequality and well-being," Nature Climate Change, Nature, vol. 11(12), pages 1111-1116, December.
    • Handle: RePEc:nat:natcli:v:11:y:2021:i:12:d:10.1038_s41558-021-01217-0
    DOI: 10.1038/s41558-021-01217-0
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    Cited by:

    1. Antimiani, Alessandro & Costantini, Valeria & Paglialunga, Elena, 2023. "Fossil fuels subsidy removal and the EU carbon neutrality policy," Energy Economics, Elsevier, vol. 119(C).
    2. Mireille Chiroleu-Assouline, 2022. "Rendre acceptable la nécessaire taxation du carbone. Quelles pistes pour la France ?," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(1), pages 15-53.
    3. Stern, Nicholas & Lankes, Hans Peter & Macquarie, Rob & Soubeyran, Éléonore, 2024. "The relationship between climate action and poverty reduction," LSE Research Online Documents on Economics 121231, London School of Economics and Political Science, LSE Library.

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