The impacts on consumers of a cap on carbon emissions will vary across income brackets and across the 50 states. This paper provides state-level estimates of these impacts by income decile. We then estimate the net effect of a cap-and-dividend policy in which all carbon permits are auctioned and 80% of the revenue is returned as dividends to the public. We find that inter-state differences are small compared to the differences across income brackets.

Within each state, at least 60% of households receive net benefits: the dividends more than offset the impact of higher fossil fuel prices on their real incomes. Differences across states are small in cap-and-dividend compared to inter-state differences in per capita spending for defense and federal farm programs. The
high visibility of dividends, coupled with the positive impact on family incomes, could enhance public support for a durable climate policy.