Rebuilding America with Carbon Grants to States: The Argument for “Price & Block Grants”

January 2017

This paper explores a specific approach to carbon pricing, called “Price and Block Grant,” where the federal government prices carbon and states take the lead in spending decisions. Under the proposal, U.S. states receive the majority of revenue in the form of block grants. The balance is reserved for reducing federal taxes or funding select new federal spending. The Price and Block Grant approach allows the U.S. to address key national and state priorities without massively increasing the federal budget deficit. Price and Block Grant builds on the strength of the U.S. federalist system, raises much-needed revenue, and is an efficient way to reduce U.S. emissions. Experts on both sides of the ideological spectrum agree that pricing carbon and other GHGs is likely the most efficient way to reduce emissions, and far more cost-effective than top-down regulations such as the Clean Power Plan. This carbon pricing approach represents an enormous new revenue stream while remaining consistent with conservative principles of limited government and local control. It eschews top-down federal regulations in favor of a market-based approach, promotes efficient and sound environmental policy and puts local actors in charge of key spending decisions. It is simply smart policy.