Carbon taxes are a critical tool in global efforts to reduce greenhouse gas emissions, but they often have regressive effects, disproportionately burdening low-income households. This study examines the economic impact of carbon taxes on different income groups, with a focus on the regressive nature of these policies. Low-income households, which typically spend a higher percentage of their income on energy and carbon-intensive goods, are more adversely affected by carbon taxes. This analysis explores potential mitigation strategies, such as rebates, targeted subsidies, and income-based tax adjustments, to offset these regressive effects. Additionally, the study investigates the role of carbon credits in income distribution, analyzing how the allocation and trading of credits can influence social equity. The research also considers the broader implications of carbon taxes and credits on income distribution, highlighting the need for policies that balance environmental objectives with social equity. By examining the intersection of carbon pricing mechanisms and income inequality, this study provides insights into how policymakers can design carbon taxes and credits that minimize regressive impacts while promoting fair and equitable climate action. The findings underscore the importance of integrating social equity considerations into carbon pricing strategies to ensure that climate policies contribute to sustainable and inclusive economic growth.