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Fighting Global Warming While Protecting Low-Income Households

We can effectively fight global warming with a carbon tax while protecting low-income households from the resulting increase in energy prices, as I explain in a new issue brief from Resources for the Future (RFF) and CBPP.  (I’ll discuss the issue brief at an RFF luncheon seminar tomorrow.)

The two goals are fully compatible:

Reducing greenhouse gas emissions to avoid the damaging and potentially catastrophic costs of global climate change is the policy objective of a carbon tax, but policymakers also recognize the importance of protecting vulnerable households from hardship due to the policy.  Fortunately, well-designed carbon-tax legislation can generate enough revenue to fully offset the hit to the most vulnerable households from higher energy prices, cushion the impact for many other households, and leave plenty to spare for other uses (whether deficit reduction, tax reform, or spending for other public purposes). . . .

The brief outlines a three-pronged approach to deliver lump-sum cash rebates to households at risk of being driven into or deeper into poverty: 

  • Lower-income working households would receive tax credits.
  • Recipients of Social Security, Supplemental Security Income, veterans’, or Railroad Retirement benefits would receive direct rebates.
  • Very low-income families would receive rebates through state human services agencies using the electronic benefit transfer (EBT) system already in place to deliver SNAP (food stamp) benefits.

This approach would reach the greatest number of households at low administrative cost by using existing, proven delivery mechanisms, rather than creating new public or private bureaucracies.  It would also preserve consumers’ incentives to reduce fossil energy use.

The approach builds on earlier CBPP analyses that informed the design of low-income protections in the Waxman-Markey cap-and-trade bill that the House passed in 2009 and the similar Kerry-Lieberman proposal circulated in the Senate in 2010.  As in these earlier proposals, the EBT mechanism is critical to reach very low-income households (mainly families with children) that have little or no earnings and don’t receive Social Security or other similar federal benefits.

See my new paper for a more detailed discussion of these issues.