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In economic parlance, this is known as a Pigovian tax, because it is meant to correct an undesirable outcome in the market, or what the British economist Arthur Pigou defined as a negative externality in this case, the greenhouse gas emissions that are responsible for global warming.Even in this case, including a standard carbon tax involves certain risks.A common objection to a carbon dividend is that it would defeat the original purpose of a carbon price, which is to encourage people to reduce emissions.Assuming that your driving behavior does not change, a carbon tax of $230 per ton the level needed just to put us on a path toward limiting global warming to 2.5 C above preindustrial levels would raise your monthly fuel expenditure by $59, to $134, or 79 percent.A straightforward carbon tax is inherently regressive, because it imposes the same cost on the poor as it does on the rich. But a carbon dividend inverts this effect, because every dollar that is returned will be worth more to a low-income household than it will be to a wealthy one.In short, a carbon dividend would distribute money from predominantly wealthy high polluters to predominantly low- and middle-income low polluters, all while reducing CO2 emissions.
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