RESEARCH INSTITUTE POLITICAL ECONOMY Cap and Dividend: How to Curb Global Warming While Protecting the Incomes Of American Families James K. Boyce & Matthew Riddle November 2007 Gordon Hall 418 North Pleasant Street Amherst, MA 01002 Phone: 413.545.6355 Fax: 413.577.0261
[email protected] www.peri.umass.edu WORKINGPAPER SERIES Number 150 CAP AND DIVIDEND: HOW TO CURB GLOBAL WARMING WHILE PROTECTING THE INCOMES OF AMERICAN FAMILIES James K. Boyce & Matthew Riddle Political Economy Research Institute University of Massachusetts, Amherst November 2007 ABSTRACT This essay examines the distributional effects of and have a regressive impact on income distri- a “cap-and-dividend” policy for reducing carbon bution, since fuel expenditures represent a lar- emission in the United States: a policy that auc- ger fraction of income for lower-income tions carbon permits and rebates the revenue households than for upper-income households. to the public on an equal per capita basis. The The net effect of carbon emission-reduction aim of the policy is to reduce U.S. emissions of policies depends on who gets the money that carbon dioxide, the main pollutant causing households pay in higher prices. We find that a global warming, while at the same time protect- cap-and-dividend policy would have a strongly ing the real incomes of middle-income and progressive net effect. Moreover, the majority of lower-income American families. The number of U.S. households would be net winners in purely permits is set by a statutory cap on carbon monetary terms: that is, their real incomes, af- emissions that gradually diminishes over time.