Feature Story

April 17, 2008

Climate-Change Legislation that Shields Low-Income Households from Increased Poverty and Hardship

Center on Budget and Policy Priorities:

Efficient, effective policies to reduce greenhouse-gas emissions work in part by raising the prices of fossil-fuel energy products to encourage energy efficiency and the substitution of clean energy sources for fossil fuel.

This is essential to prevent extensive environmental and economic damage from climate change.

However, it will raise costs to consumers for a wide array of products and services, from gasoline and electricity to food, mass transit, and other products or services with significant energy inputs.

The cost increases will pose special challenges for low- and moderate-income households because, as Congressional Budget Office studies have shown, they spend a larger share of their budgets on energy than better-off households do.

Using methodology developed by CBO and data from the Bureau of Labor Statistics' Consumer Expenditure Agency, we estimate that households in the poorest fifth of the population would, on average, face an estimated $750 to $950, a year in added costs (in today's dollars) if emissions were reduced 15 percent below projected levels, which is a modest emissions-control target.

Fortunately, as a separate Center analysis (and CBO analyses) indicate, well-designed climate-change policies can provide sufficient revenue to cushion the impact on vulnerable households so that increases in poverty do not occur, as well as to address other public needs related to climate change.

It proposes a set of standards that any mechanisms should meet and explains why various proposals suggested to date do not meet these standards.

The paper also outlines a two-pronged approach to protecting low-income consumers that entails providing a "climate-change rebate" to low-income households through established electronic benefit transfer (EBT) systems (a debit card system states use to deliver certain low-income benefits), in combination with targeted tax relief through the Earned Income Tax Credit.