Putting a price on carbon through a fee on fossil fuel products is a cost-effective way to reduce greenhouse gas emissions. The resulting higher prices of climate-polluting fossil fuel products would reduce their consumption across all sectors of the economy.

But what to do with all the revenues collected through the carbon emissions fee?

The revenues can be added to the government treasury to fund government programs. Or the money can be limited to funding climate-related policies like providing rebates for zero-emission vehicles. Or if we care about climate justice—that is, reducing the disparities among social groups when it comes to the impacts of climate change, then the revenues can be given back to the people in equal shares as climate rebates, consistent with the principle that all people should share equally the gifts of nature.

Lower-income households tend to purchase fewer goods and services, so they would pay less in carbon emissions fees than higher-income households. Thus, if they receive the same climate rebate as all other households, they would, on average, not only increase their net income, but they would benefit more from the policy than higher-income households. In other words, the policy would be progressive.

That’s Carbon Cashback.

Carbon Cashback alone cannot eliminate all the disparities among social groups when it comes to the impacts of fossil fuel consumption and climate change. Traditional regulatory mechanisms are needed, for example, to eliminate particulate pollution hot spots near disadvantaged neighborhoods. But Carbon Cashback can help ensure that vulnerable communities are not left behind as we transition to a carbon-free economy.