The Household Impact Study
This training walks through the Household Impact Study, a working paper that assessed the net financial impact of a carbon fee and dividend policy on U.S. households across each state and congressional district as well as what percentage of people would receive more money from the dividend than they see in increased expenses from the carbon fee (and by how much).
Financial Impact on Households
In February 2016, Citizens’ Climate Education (CCE) and Citizens’ Climate Lobby (CCL) released the Household Impact Study, a working paper that assessed the net financial impact on U.S. households of a $15/ton of CO2 carbon fee in which all proceeds are returned to households on a per-capita basis.
Household Impact Study Highlights:
• 53% of US households and 58% of individuals receive a net financial benefit as the dividend exceeds the estimated increase in costs of goods purchased (Figure 1). This analysis assumes that 100% of costs to businesses are passed on to consumers, but does not include any of the health and environmental benefits that come with reducing greenhouse gases and other pollutants.
Figure 1: Bar graph showing estimated increase in costs for all US households, as well as for each of 5 income quintiles (quintile 1 = lowest income, quintile 5 = highest income). The average household in any quintile with a cost below $261 would be expected to experience a net benefit from the policy.
• The gains are concentrated among those considered “most vulnerable” within our society: those with lower incomes (Fig 2, below), the youngest and oldest (Fig 3, below), and minorities (Fig 4, below). Since the Dividend formula is not means-tested in any way, this effect stems simply from charging for pollution and returning proceeds equally per person; not any type of redistribution.
Figure 2: Percent of Households Benefited or with a minor loss, by Income quintile.
Figure 3: Percent of Households benefited or with a minor loss, by age group.
Figure 4: Percent of Households benefited or with a minor loss, by race.
• Though households with higher incomes generally experience a net loss in this study, the impact would be minimal. 15% of households in the 5th quintile actually benefit, and an additional 42% experience only a minor loss (defined as a loss less than 0.2% of annual income). Among those that do not benefit, the typical loss is equal to just 0.2% of income.
Calculate the impact of Carbon Fee and Dividend on your budget.
About the study
The purpose of the working paper was to respond to enduring interest from members of Congress in how their own constituents would fare under CCL’s Carbon Fee and Dividend proposal. To complete that study CCE and CCL funded Kevin Ummel, an independent researcher at the Center for Global Development and author of a separate, earlier study estimating household carbon emissions with zip-code level detail.
The analysis is “static” and does not consider the “dynamic” effects the policy and corresponding price changes would have on the general economy. It is assumed the entire pollution fee is passed through in the form of higher prices “overnight”, without changes in production or consumption in response to the price signal.
This study provides a useful look at how every congressional district does in unprecedented detail. Though overall projections for how many households benefit are lower than some previous estimates, the overall progressivity of this policy is highlighted, especially in contrast to other options for addressing climate change.
Dr. Phil Harding
Dr. Phil Harding