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Protecting the poor with a carbon tax and equal per capita dividend

We find that if all countries adopt the necessary uniform global carbon tax and then return the revenues to their citizens on an equal per capita basis, it will be possible to meet a 2 °C target while also increasing wellbeing, reducing inequality and alleviating poverty. These results indicate that it is possible for a society to implement strong climate action without compromising goals for equity and development.

Messages for policy

  • The revenues from a carbon tax capable of achieving a 2 °C target will be large enough to fund substantial policies that can promote equity and protect vulnerable populations.

  • An equal per capita redistribution of carbon tax revenues within countries — a relatively straightforward policy to implement — can increase wellbeing, reduce inequality and alleviate poverty.

  • These benefits occur in countries at all levels of development, primarily accrue to individuals at the bottom of the income distribution, and are even greater with global equal per capita redistribution.

  • Large benefits will occur even if some revenues are lost to administrative costs or are saved to fund other programs, and they can make the poorest citizens net beneficiaries this decade.

  • Given an equal per capita refund, the optimal timing of global greenhouse gas mitigation is characterized by rapid initial reductions, followed by a slower climb towards net zero emissions.

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Fig. 1: Poverty reduction with an equal per capita refund of carbon tax revenues.


Further reading

  • Sterner, T. Fuel Taxes and the Poor: the Distributional Effects of Gasoline Taxation and their Implications for Climate Policy (Routledge, 2012). A volume compiling studies from around the world that together challenge the conventional wisdom that gasoline taxation, an important and much debated instrument of climate policy, has a disproportionately detrimental effect on poor people.

  • Klenert, D. et al. Making carbon pricing work for citizens. Nat. Clim. Change 8, 669–677 (2018). A study that synthesizes findings on the optimal use of carbon revenues from both traditional economic analyses and studies in behavioural and political science that are focused on public acceptability.

  • Carattini, S., Kallbekken, S. & Orlov, A. How to win public support for a global carbon tax. Nature 565, 289–291 (2019). An article describing evidence indicating that charges on emissions could be popular if revenues are given back to citizens.

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  • Dennig, F., Budolfson, M. B., Fleurbaey, M., Siebert, A. & Socolow, R. H. Inequality, climate impacts on the future poor, and carbon prices. Proc. Natl Acad. Sci. USA 112, 15827–15832 (2015). An article that introduces sub-regional inequality into optimal climate policy models and finds that, when future damage particularly effects the poor, a considerably greater global mitigation effort is needed.

  • Economists’ Statement on Carbon Dividends (Climate Leadership Council, 2021); statementsigned by over 3600 economists, including 28 Nobel laureatesthat describes five policy recommendations to address global climate change, including the use of a carbon tax whereby all revenue is returned directly to citizens through equal per capita rebates.

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This article has received funding from the NAVIGATE project of the European Union’s Horizon 2020 research and innovation program under grant agreement no. 821124 (S.F., M. Fleurbaey, U.K., A.M., F.W. and S.Z.) and the National Institute of Environmental Health Sciences (NIEHS)-funded HERCULES Center P30ES019776 (N.S.). The authors thank C. Burnham and the Climate Futures Initiative at Princeton University for support.

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Correspondence to Mark Budolfson or Noah Scovronick.

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Budolfson, M., Dennig, F., Errickson, F. et al. Protecting the poor with a carbon tax and equal per capita dividend. Nat. Clim. Chang. 11, 1025–1026 (2021).

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