Progressive Revenue Recycling Can Alleviate Poverty, Reduce Inequality and Improve Wellbeing
Research Seminars: SWEEEP SeminarExisting estimates of optimal climate policy ignore the possibility that the revenues from a carbon tax could be used in a progressive way; as a result, these models imply that near-term climate action must come at some cost to the poor. Here the paper presented in this Research Seminar shows that this storyline reverses when progressive revenue recycling is taken into account. The authors find that an equal per capita refund of carbon tax revenues implies that a 2°C target can pay large and immediate dividends for improving wellbeing, reducing inequality, and alleviating poverty. In an optimal policy calculation (without a pre-specified temperature constraint) that weighs the benefits against the costs of mitigation, the recommended policy is characterized by aggressive near-term climate action followed by a slower climb towards full decarbonization; this pattern prevents runaway warming while also preserving tax revenues for redistribution. Their approach corrects a long-standing bias against strong immediate climate action.
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