The introduction of carbon charges on the use of fossil fuels in China would have
a progressive impact on income distribution. This outcome, which contrasts to the
regressive distributional impact found in most studies of carbon charges in
industrialized countries, is driven primarily by differences between urban and
rural expenditure patterns. If carbon revenues were recycled on an equal per
capita basis via a ‘sky trust,’ the progressive impact would be further enhanced:
low-income (mainly rural) households would receive more in sky-trust dividends
than they pay in carbon charges, and high-income (mainly urban) households
would pay more than they receive in dividends. Thus a Chinese sky trust would
contribute to both lower fossil fuel consumption and greater income equality.