Inflation, high gas prices and pollution
Rising inflation, high gas prices and climate change are often treated as separate problems, but they are closely linked and share a common solution.
Gas prices play an outsized role in how Americans experience inflation. When fuel costs spike, it ripples through the economy, raising the price of transporting goods, producing food and heating homes. Economists consistently find that energy prices are a major driver of inflation and strongly influence overall economic conditions.
These price spikes reveal a structural problem: our dependence on fossil fuels. Oil and gas markets subject to global disruptions, geopolitical conflict, and supply shocks. Recent price surges underscore how events far beyond our control can quickly drive up costs for families and businesses.
Compounding the issue, pollution from fossil fuels is also a source of inflation. Increasingly severe droughts, heatwaves and floods driven by climate change are disrupting agriculture, supply chains and infrastructure, further raising prices.
Yet simply enduring high gas prices does not solve the problem. Research shows that short-term price spikes alone do little to reduce fuel consumption or emissions, because demand for gasoline is relatively inelastic in the near term.
A cash-back carbon fee on fossil fuel production would address all three challenges at once. By making the cost of pollution visible, it would reduce emissions, drive investment in clean energy and reduce household exposure to volatile fossil fuel markets. An equal cash-back dividend of the funds collected would protect families from higher costs and put most families ahead financially.
Instead of reacting with surprise to each new price spike, we should adopt the Carbon Fee and Dividend policy for long-term stability, less pollution and the more resilient economy we need.