'Pay larger carbon cheque back to poorer and rural households'
Rural and poorer households should get a larger refund to make up for increases in the carbon tax.
A new study from the Economic and Social Research Institute says an increase in carbon tax on fuel will have a bigger impact on poorer households and people in the countryside than middle and upper-income people.
This means they should get a larger "carbon cheque". Alternatively, they could get refunds through the welfare system.
Poorer households spend more of their income on energy. If money raised from a hike in carbon tax is returned to households, then the impact on poorer householders can be corrected, the paper says.
Sending a "carbon cheque" to each household is one of the ideas being considered by the Government to stop households feeling the carbon levy is just another tax.
If the same-sized cheque or refund is sent to every household, it will lead to only minor changes in income inequality.
But if a targeted mechanism is used, that directs more of the revenue to poorer households, then this can reduce income inequality.
Carbon tax is seen as an important tool in combating climate damage.
It is already applied to coal, diesel, petrol, home-heating oil, briquettes and gas.
The ESRI acknowledges that carbon tax is controversial, especially because of its impact on poorer and rural households.
One potential solution, proposed by the Green Party and others, is for the State to raise the extra tax and pay the extra amount back to households. Households could receive annual cheques of between €200 and €400.