An Analysis of the Distributional Effects of a Carbon Tax on Residential Energy Consumption in the United States

Abstract

Global warming seriously threatens our generation, producing various adverse environmental, economic, and health effects. Energy consumption is a significant contributor to climate change due to CO2 emissions. Residential energy consumption accounts for about 20% of greenhouse gas emissions, a non-negligible portion that requires closer inspection. The United States’ current climate policy is insufficient for achieving emission reduction targets; thus, implementing additional policies is necessary. One policy that incentivizes emission reduction is the carbon tax. While there are many benefits to a carbon tax, it is not without its faults. One significant issue that critics point to is that, at times, it can be regressive and exacerbate inequality. This report examines the distributional impacts of a carbon tax on residential energy consumption, focusing on ways to navigate and mitigate its regressive effects. The analysis seeks to provide valuable insights for policymakers by employing a policy-targeting approach with a lens on racial equality.