Thanks to an amazing interdisciplinary team effort, we have a new paper out in @NatureClimate, "#Climate Action with Revenue Recycling has Benefits for #Poverty, #Inequality, and Well-Being." @ERGBerkeley @PrincetonSPIA

Paper Link: nature.com/articles/s4155…

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How can a carbon tax be implemented so it simultaneously reduces global emissions, protects the poor against high policy costs, and achieves equity goals? We use a revenue recycling framework to explore this question for a (i) 2 °C scenario and (ii) optimal policy scenario.

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We first carried out an extensive literature review to identify how the initial distribution of carbon tax payments and mitigation costs affect different income groups. Our modeling captures this relationship, which evolves over time as a region's per capita GDP changes.

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In the 2 °C scenario, carbon tax revenue recycling buffers the bottom of the income distribution against potentially high mitigation policy costs. It also leads to reductions in inequality (as measure by the Gini index, not pictured).

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This result assumes revenues are recycled on an equal per capita basis within the country/region that applies the tax. If the revenues are instead pooled globally and then redistributed equally around the world, the positive effect on poverty and well-being is even stronger.

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For an optimal policy (without a temperature constraint), a Carbon Laffer Curve induces a tradeoff with early rapid decarbonization, followed by a gradual build to net-zero emissions to preserve revenues for the poor. This assumes there are no background inequality policies.

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In sum, these results indicate that society can implement strong #climate action without compromising goals for #equity and #development – but this requires a careful focus on equity in policymaking.

Please also see the corresponding Policy Brief: nature.com/articles/s4155…

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