Abstract

There is only one way to guarantee that we keep fossil fuels in the ground to the extent needed to meet the 1.5–2 °C warming target of the Paris Agreement: we must impose hard limits on the amount of fossil carbon allowed to enter our economies and thence earth’s atmosphere. This would be almost certain to raise fuel prices, perhaps quite substantially. A robust and effective carbon price – implemented by means of a carbon tax, a carbon cap, or a combination of the two – will have major distributional impacts that must be addressed for reasons of both economic equity and political sustainability. Carbon dividends are one way to do so. Carbon pricing should be implemented as a complement, not an alternative, to other policies to advance the clean energy transition, including public investment and smart regulations.