Low-Income Households

Low-Income Households Laser Talk

Question: How will a carbon fee affect low-income households?

Answer:  Under a carbon fee and dividend policy like the Energy Innovation and Carbon Dividend Act, [1] 61 percent of U.S. households will end up with more money in their pockets, and low-income households typically benefit the most. [2,3,4]

Why is this? The reason is simply that low-income households typically have lower carbon footprints. [5] When energy producers, manufacturers, and businesses raise their prices to cover the cost of the carbon tax, those price increases will be spread evenly across their products and services regardless of who buys them. But since Americans in the wealthiest 20 percent of the population spend 2.6 times as much on energy than the bottom 20 percent, they’ll pay more to cover those higher costs than they’ll receive in cashback payments.  Low-income Americans will come out ahead 96 percent of the time, simply because they consume far less energy than the wealthy. [6]

Renewable energy is also likely to benefit job seekers from underserved communities because it is more labor-intensive than fossil energy [7] and spans may parts of the country where career opportunities are sorely needed. [8] Moreover, a 2014 analysis by REMI revealed that a carbon fee and dividend policy would also increase jobs, including job creation in occupations like retail, hospitality, and health care that could reduce unemployment in low- to middle-income communities. [9]

Carbon fee and dividend will leave low-income households better off financially and more likely to have a job, and can do this without any costly and complicated means testing.

In a Nutshell: Low-income Americans, no matter where they live, have smaller carbon footprints than the wealthy So with a carbon fee that sends the revenue back to households as an equal carbon cash  payment, 96 percent will actually come out ahead and also see expanding job opportunities.

  1. “H.R.2307 – Energy Innovation and Carbon Dividend Act of 2021.” Library of Congress (01 Apr 2021).
  2. Williams, R.C., et al. “The Initial Incidence of a Carbon Tax across Income Groups.” Resources for the Future (Aug 2014).
  3. Komanoff, C. “The climate solution that boosts income for over 60% of Americans – the ones who most need it.” Carbon Tax Center (15 Sep 2017).
  4. Fremstad, A. and M. Paul. “The Impact of a Carbon Tax on Inequality.” Ecological Economics 163, 88-97 (Sep 2019).
  5. Boyce, J.K. “Carbon Pricing: Effectiveness and Equity.” Ecological Economics 150, 52-61  (29 Mar 2018).
  6. Ummel, K. “Household Impact Study II (HIS2): The impact of a carbon fee and dividend policy on the finances of U.S. households.” Working Paper v1.1 (Aug 2020).
  7. Wei, M., S. Patadia, and D.M. Kammen. “Putting renewables and energy efficiency to work: How many jobs can the clean energy industry generate in the US?” Energy Policy 38, 919-931 (2010).
  8. Tomer, A., J.W. Kane, and C. George. “How renewable energy jobs can uplift fossil fuel communities and remake climate politics.” Brookings Institution (23 Feb 2021).
  9. Nystrom, S. and P. Luckow. “The Economic, Climate, Fiscal, Power, and Demographic Impact of a National Fee-and-Dividend Carbon Tax.” Regional Economic Models, Inc. and Synapse, Inc. (9 June 2014).

This page was last updated on 10/27/21 at 23:28 CDT.