Community benefit funds that channel carbon revenues into environmental investments in disadvantaged communities can promote both equity and efficiency. Based on a memorandum written for the Economics and Allocation Advisory Committee of the California Air Resources Board and California Environmental Protection Agency.

The California Global Warming Solutions Act of 2006 (Assembly Bill 32) mandates that the California Air Resources Board (CARB) should seek to channel investment to the state's most disadvantaged communities:

In addition, the Act mandates that CARB should consider localized impacts of co-pollutants that are emitted along with carbon dioxide when fossil fuels are burned:

Disadvantaged communities often are disproportionately impacted by air pollutants, including co-pollutants generated by the use of fossil fuels. One way to fulfill these mandates is to allocate a share of allowance value (that is, revenue from auctions of carbon emission permits) to these communities for the purpose of environmental improvements.

This use of allowance value primarily involves investment, but it also can be considered a form of compensation in that a community's eligibility to receive benefits rests on its disadvantaged status, including disproportionate pollution exposure. Eligibility for compensation does not require that AB 32 causes an increase in co-pollutants in the localities–an outcome specifically prohibited in the section of the Act quoted above–but rather that disproportionate impacts relative to other localities persist after AB 32 implementation.