The Incidence of U.S. Climate Policy: Where You Stand Depends on Where You Sit

71 Pages Posted: 24 Sep 2008 Last revised: 16 Oct 2008

See all articles by Dallas Burtraw

Dallas Burtraw

Resources for the Future

Richard Sweeney

Resources for the Future

Margaret Walls

Resources for the Future - Quality of the Environment Division

Date Written: September 15, 2008

Abstract

Federal policies aimed to slow global warming would impose potentially significant costs on households that vary depending on the policy approach that is used. This paper evaluates the effects of a carbon dioxide cap-and-trade program on households in each of 11 regions of the country and sorted into annual income deciles. We find tremendous variation in the incidence (the distribution of cost) of the policy. The most important feature that affects households is how the policy distributes the value created by placing a price on CO2 emissions. We evaluate 10 policy alternatives that yield results that range from moderately progressive (expansion of the Earned Income Tax Credit, investments in efficiency and cap-and-dividend) to severely regressive (reduce income taxes, free distribution to incumbent emitters and reduction of the payroll tax). To varying degrees the allocation of the value of emissions allowances amplifies or potentially resolves the tradeoff between equity and efficiency.

Keywords: cap-and-trade, allocation, distributional effects, cost burden, equity

JEL Classification: H22, H23, Q52, Q54

Suggested Citation

Burtraw, Dallas and Sweeney, Richard and Walls, Margaret, The Incidence of U.S. Climate Policy: Where You Stand Depends on Where You Sit (September 15, 2008). RFF Discussion Paper No. 08-28, Available at SSRN: https://ssrn.com/abstract=1272667 or http://dx.doi.org/10.2139/ssrn.1272667

Dallas Burtraw (Contact Author)

Resources for the Future ( email )

1616 P Street, NW
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202-328-5087 (Phone)

Richard Sweeney

Resources for the Future ( email )

1616 P Street, NW
Washington, DC 20036
United States

Margaret Walls

Resources for the Future - Quality of the Environment Division ( email )

1616 P Street, NW
Washington, DC 20036
United States

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