This paper analyzes the benefits and costs of a carbon fee‐and‐dividend (CFD) policy to individual rural Alaska households. The three study area regions are the Bethel Census Area, the Kusilvak Census Area, and the Northwest Arctic Borough. These three regions have the state’s highest fuel prices and very cold climates. The CFD policy consists of two elements.  The first is a fee of $15 per metric ton of CO2 beginning in 2016 and increasing by $10 per ton in each subsequent year. The second is the complete return of all fees to households in the form of dividends, which are estimated to equal $300 for each adult plus $150 for each child (up to two). The annual dividends would increase in future years commensurate with the nationwide total amount of fees. Baseline conditions.  The study area has a total population of about 32,000 people, many of whom live in large households with low cash income. Fuel prices averaged $6.62 per gallon in January 2015.