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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
Date of revision:
Handle: RePEc:rff:dpaper:dp-09-17-rev
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  1. Parry, Ian W. H. & Williams, Roberton III & Goulder, Lawrence H., 1999. "When Can Carbon Abatement Policies Increase Welfare? The Fundamental Role of Distorted Factor Markets," Journal of Environmental Economics and Management, Elsevier, vol. 37(1), pages 52-84, January.
  2. Goulder, Lawrence H. & Parry, Ian W. H. & Williams III, Roberton C. & Burtraw, Dallas, 1999. "The cost-effectiveness of alternative instruments for environmental protection in a second-best setting," Journal of Public Economics, Elsevier, vol. 72(3), pages 329-360, June.
  3. Metcalf, Gilbert E., 1999. "A Distributional Analysis of Green Tax Reforms," National Tax Journal, National Tax Association, vol. 52(n. 4), pages 655-82, December.
  4. Parry, Ian W. H., 2004. "Are emissions permits regressive?," Journal of Environmental Economics and Management, Elsevier, vol. 47(2), pages 364-387, March.
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  6. Gilbert E. Metcalf & Sergey Paltsev & John Reilly & Henry Jacoby & Jennifer F. Holak, 2008. "Analysis of U.S. Greenhouse Gas Tax Proposals," NBER Working Papers 13980, National Bureau of Economic Research, Inc.
  7. Suits, Daniel B, 1977. "Measurement of Tax Progressivity," American Economic Review, American Economic Association, vol. 67(4), pages 747-52, September.
  8. 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.
  9. Gilbert E. Metcalf, 2009. "Designing a Carbon Tax to Reduce U.S. Greenhouse Gas Emissions," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 3(1), pages 63-83, Winter.
  10. Bovenberg, A.L. & de Mooij, R.A., 1994. "Environmental levies and distortionary taxation," Other publications TiSEM 4b32deaa-ec2f-4de7-b59b-9, Tilburg University, School of Economics and Management.
  11. 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.
  12. Ian Parry & Hilary Sigman & Margaret Walls & Roberton Williams, 2005. "The Incidence of Pollution Control Policies," Departmental Working Papers 200504, Rutgers University, Department of Economics.
  13. Sergey Paltsev & John M. Reilly & Henry D. Jacoby & Angelo C. Gurgel & Gilbert E. Metcalf & Andrei P. Sokolov & Jennifer F. Holak, 2007. "Assessment of U.S. Cap-and-Trade Proposals," NBER Working Papers 13176, National Bureau of Economic Research, Inc.
  14. Matthew Riddle & James Boyce, 2007. "Cap and Dividend: How to Curb Global Warming while Protecting the Incomes of American Families," Working Papers wp150, Political Economy Research Institute, University of Massachusetts at Amherst.
  15. 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.
  16. Paul, Anthony & Burtraw, Dallas & Palmer, Karen, 2008. "Compensation for Electricity Consumers Under a U.S. CO2 Emissions Cap," Discussion Papers dp-08-25, Resources For the Future.
  17. 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.
  18. 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.
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