This chapter examines the scope for addressing two problems in the Chinese economy with one policy. The problems are rising fossil fuel consumption and rising income inequality. The policy is a ‘sky trust’: a capand-dividend system of carbon charges in which the revenues are recycled to the public on an equal per capita basis. The choice of China as a setting for this analysis is motivated by three considerations. First, China’s rising use of fossil fuels is widely seen as jeopardizing both the sustainability of the country’s rapid economic growth and the prospects for redressing global climate change. Second, China’s rising income inequality, particularly urban-rural inequality, is a source of concern from the standpoints of both human development and potential social unrest. Third, as a developing country, China’s pattern of fossil fuel use is likely to differ from that in the industrialized countries where most prior studies of the distributional impacts of carbon charges have been undertaken.
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