Passing the check: How overlapping climate policies shift the distribution of costs in California

Energy and transportation services represent a significant portion of household budgets, particularly for low-income households. Climate policies that increase the cost of energy and transportation services can lead to disparate impacts across income and demographic groups. When multiple overlapping climate policies are in place, they may interact to compound or shift the distribution of costs. This study employs household expenditure microdata from the Consumer Expenditure Survey to examine the distributional costs of two overlapping policies in California: the cap-and-trade program (CAT) and the low carbon fuel standard (LCFS). Findings indicate that the LCFS is regressive and that the CAT, while highly regressive at initial incidence, is similar in net incidence to the LCFS after returning some revenue to households through utility rebates. Yet the CAT program leads to greater differences in impacts on households within income groups, even exceeding differences between groups. Interactions between the two policies lead to higher costs for households across income deciles compared to achieving the same level of emissions reduction with the CAT alone. This suggests there is no equity-efficiency tradeoff in choosing between these policy instruments.