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

  • Burtraw, Dallas

    ()

    (Resources for the Future)

  • Sweeney, Richard

    ()

    (Resources for the Future)

  • Walls, Margaret

    ()

    (Resources for the Future)

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.

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Paper provided by Resources For the Future in its series Discussion Papers with number dp-09-17-rev.

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Date of creation: 09 Apr 2009
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Handle: RePEc:rff:dpaper:dp-09-17-rev
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  9. Shammin, Md Rumi & Bullard, Clark W., 2009. "Impact of cap-and-trade policies for reducing greenhouse gas emissions on U.S. households," Ecological Economics, Elsevier, vol. 68(8-9), pages 2432-2438, June.
  10. Dallas Burtraw & Karen Palmer, 2008. "Compensation rules for climate policy in the electricity sector," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 27(4), pages 819-847.
  11. Bovenberg, A Lans & Goulder, Lawrence H, 1996. "Optimal Environmental Taxation in the Presence of Other Taxes: General-Equilibrium Analyses," American Economic Review, American Economic Association, vol. 86(4), pages 985-1000, September.
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  15. Parry, Ian, 2003. "Are Emissions Permits Regressive?," Discussion Papers dp-03-21, Resources For the Future.
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  17. Bovenberg, A.L. & Goulder, L.H., 1996. "Optimal environmental taxation in the presence of other taxes : General equilibrium analyses," Other publications TiSEM 5d4b7517-c5c8-4ef6-ab76-3, Tilburg University, School of Economics and Management.
  18. Andrew B. Lyon & Robert M. Schwab, 1991. "Consumption Taxes in a Life-Cycle Framework: Are Sin Taxes Regressive?," NBER Working Papers 3932, National Bureau of Economic Research, Inc.
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