Written by interns Danniele Fulmer, Maria Zlotescu, and Olivia Kuykendall
At the heart of any campaign that combats climate change, there should be a dedication to justice and equity. The proposed D.C. carbon fee and rebate policy is a wonderful example of this dedication to a cleaner, more equitable future. Backed by economists, environmentalists, and social justice activists, this policy can help all the District’s residents, especially the most vulnerable.
And now, two new economic studies show how and why the rebate portion of this policy is essential to addressing justice.
It has long been established that carbon and rebate fee models can be used to reduce carbon dioxide emissions to combat climate change. Carbon pricing has also been embraced as the most effective solution by economists. In the 2015 report, “Expert Consensus on the Economics of Climate Change,” a survey found that 75% of economists agree that market-based mechanisms, such as a carbon tax, are the best way to address climate change.
Now, two new studies demonstrate that carbon fee and rebate policies can have economic benefits while also addressing justice. In particular, these studies, conducted by Boston College and the University of Massachusetts Amherst, found that fee and rebate models can lead to a substantial decrease in income inequality. The studies both bear well on our efforts to put a price on carbon in D.C. through a fee and rebate model.
The first study, titled “Income Inequality and Carbon Emissions in the US: A State-Level Analysis,” found that there is a direct correlation between the concentration of wealth and carbon dioxide emissions. Basically, the higher the income equality in any given state, the likelier it is for the state to have higher carbon dioxide emissions, as is demonstrated by the tables below.
Additionally, the Boston College study notes that a carbon tax without a built in rebate could harm low-income communities. But with a rebate, this type of policy has the potential to benefit a larger portion of an area’s population. The study found that if a $200 tax per ton of carbon were adopted without a rebate, the bottom quintile of households would suffer 10.2% income loss. However, with a built-in rebate, the bottom quintile would see a 14.8% gain in income.
Luckily, the D.C. carbon fee and rebate policy plans to do just that, by rebating 75% of carbon revenue back to D.C. residents, with other portions reserved for renewable energy projects and local business property tax assistance.
The second study, “A Distributional Analysis of a Carbon Tax and Dividend in the United States,” published by the University of Massachusetts Amherst, compared carbon fee and rebate programs with other climate solutions such as cap and trade and tax breaks. The basic finding was that cap and trade, as well as tax breaks, could benefit higher income individuals disproportionately, leading to regressive impacts on lower and middle-income individuals. Furthermore, regressive tax measures have a tendency to reduce spending in regions, resulting in a decrease in economic activity. However, the researchers yet found that carbon fee and rebate policies have the potential to empower citizens through income gains, resulting in an increase in purchasing power and higher economic activity. More specifically, the study showed that distributing equal rebates can protect the purchasing power of 61% of individuals, 89% of which fall under the lowest income category. This goes to show that utilizing a carbon fee and rebate model is truly the most equitable way to address climate change.
By looking at the proposed D.C. carbon fee and rebate policy against this backdrop, we can see that one of the most critical elements of the policy is the rebate mechanism, which prevents regressive outcomes.
When considered together, both of these economic studies support the idea that a carbon fee and rebate policy is the most efficient and just mechanism to address climate change, which is great news for the D.C. carbon fee and rebate campaign!
We have environmental and economic experts on our side. Now we must build our movement to get this policy passed in the District.
This campaign has been in the works for two years now and there is no doubt that the overwhelming body of support from economic, environmental, and social justice standpoints will continue growing from here. Over 20 cities and states are currently either voting on or following a carbon fee and rebate plan. Environmental experts already support carbon fees as a way to reduce CO2 emissions. Politicians from both sides of the aisle also endorse the idea. The carbon fee and rebate bill would not only be environmentally effective, but economically beneficial as well. According to leading environmentalists, in order to prevent irreversible damage to the environment, the U.S. must eliminate carbon pollution entirely by the end of the century. The carbon fee and rebate policy will go a long way to meeting that goal.
Article Citations:
- Fremstad, A. and Paul, M.. “A Distributional Analysis of a Carbon Tax and Dividend in the United States.” Working Paper Series, Political Economy Research Institute (2017).
- Jorgenson, A, et. al. “Income Inequality and Carbon Emissions in the US: A State-Level Analysis.” Ecological Economics 134 (2017) 40-48.