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.
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All data used in our version of the model are archived53 and freely available at https://github.com/Environment-Research/revenue_recycling.
All model code used to generate results and create figures for this article is archived53 and freely available at https://github.com/Environment-Research/revenue_recycling.
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This article has received funding from the NAVIGATE project of the European Union’s Horizon 2020 research and innovation programme under grant no. 821124 (S.F., M. Fleurbaey, U.K., A.M., F.W. and S.Z.) and the NIEHS-funded HERCULES Center P30ES019776 (N.S.). We thank C. Burnham and the Climate Futures Initiative at Princeton University for support.
The authors declare no competing interests.
Peer review information Nature Climate Change thanks Allen Fawcett and the other, anonymous, reviewer(s) for their contribution to the peer review of this work.
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Budolfson, M., Dennig, F., Errickson, F. et al. Climate action with revenue recycling has benefits for poverty, inequality and well-being. Nat. Clim. Chang. 11, 1111–1116 (2021). https://doi.org/10.1038/s41558-021-01217-0