The director of the US Congressional Budget Office talks sense about how to make climate policy fair to low- and middle-income consumers.  They’ve got a long version (pdf) and a short version on their blog.

If you care about this issue at all, you really should read these.  Seriously.

  • The CBO note clearly shows that putting a price on carbon emissions will have a greater impact on the poor than on the rich.  According to their figures, the bottom quintile of US households spends 22 percent of its income on energy, while the top quintile spends just 4 percent.  Proportionately, rising energy prices will hit low-income folks five times as hard as they hit the well-off.

    So if we want to keep climate policy fair, the most important thing we can do to is to make polluters pay to emit climate-warming pollution—either by levying a carbon tax, or by holding a public auction of emissions permits under a cap-and-trade system—and then use the revenue  to help low- and middle-income folks deal with higher energy prices.  If you do it right, polluters pay, but most people are are held harmless.

    One smart way to use that revenue is simply to rebate any revenue from carbon pricing equal, lump sum payments to all US citizens.  (We discuss this approach in the context of a cap & trade system  here.  NASA climatologist James Hansen supports a similar approach, based on taxes rather than a cap.)

    However, there’s no existing mechanism—no agency or list of people and addresses and so forth—that’s already set up to distribute lump-sum payments to the entire population of the US.  (The system’s already in place for Alaska, of course, since everyone in Alaska is entitled to a slice of the Alaska Permanent Fund, which draws money from the oil and gas leases.)  The lack of a pre-existing system could be a significant drawback, if we want to get a carbon pricing program up and running quickly.  So the CBO report looks at a number of ways to low-income folks using existing legal tools at the federal level:  the tax code, Supplemental Security Income, Food Stamp benefits, and so forth.

    As Kevin Drum notes:

    No single solution targets assistance to the poor ideally, but a basket of solutions (payroll tax rebates, energy assistance, more funding for mass transit, etc.) can do a pretty good job. It won’t be perfect, but a well-designed program can make a cap-and-trade program pretty progressive.

    That’s exactly right—if you want to protect families from the impacts of rising emissions prices, there’s no single legal tool currently in existence that fits the bill. 

    But when I consider the legal, programmatic, and political hodgepodge that would be required to create that “basket of solutions” that Drum talks about, the idea of equal lump-sum payments starts sounding even better to me.  Distributing lump-sum payments does have the virtue of simplicity, which could outweighs the fact that nothing like it currently exists at the federal level.