Carbon pricing via a tax or a cap-and-permit system is an important instrument in the climate policy toolkit. Quantitative emission targets must be built into the price-setting process to ensure the desired levels of emission reductions. To achieve the goal of limiting the increase in global mean temperature to 1.5 to 2 °C above pre-industrial levels, prices considerably above the “social cost of carbon” prescribed by conventional cost-benefit analyses may be necessary. The impact on households of carbon pricing at this level will be substantial and regressive, posing issues of political sustainability as well as distributional equity. The allocation of carbon revenue can help to address these issues.
James K. Boyce is professor of economics at the University of Massachusetts Amherst, where he directs the environment program at the Political Economy Research Institute. His most recent book, Economics, the Environment, and Our Common Wealth (2013) was selected by the American Library Association as a Choice Outstanding Academic Book. His previous books include Reclaiming Nature: Environmental Justice and Ecological Restoration (2007); Natural Assets: Democratizing Environmental Ownership (2003); and The Political Economy of the Environment (2002). He served on the Economic and Allocation Advisory Committee of the California Air Resources Board and California Environmental Protection Agency for implementation of the state’s Global Warming Solutions Act, and is the author of the forthcoming book, The Case for Carbon Dividends (Polity Press, 2018). Professor Boyce received the 2017 Leontief Prize for Advancing the Frontiers of Economic Thought.