Distributional effects of carbon pricing and the role of social protection

Authors: Kuishuang Feng*, University of Maryland, Adrien Vogt-Schilb, Inter-American Development Bank, Brian Walsh, Inter-American Development Bank, Klaus Hubacek, University of Maryland
Topics: Economic Geography, Political Geography
Keywords: Carbon tax, distributional effects, social protection, climate change
Session Type: Poster
Day: 4/4/2019
Start / End Time: 8:00 AM / 9:40 AM
Room: Lincoln 2, Marriott, Exhibition Level
Presentation File: No File Uploaded

Climate change may not only directly impacts on our society due to the increase of natural disasters and environmental degradation, but also imposes transitional risk including distributional effects of climate change policies. Countries have pledged in the Paris Agreement to stabilize global warming well below 2°C, which will require reducing fossil carbon emissions to net zero before the end of the century. Among the many policies that can be used to support that transition, carbon taxes that would increase the price of energy have received significant attention. Carbon taxes are also advocated as an efficient fiscal policy that could contribute to reduce informality, finance investment in infrastructure, and fund social and environmental programs. However, carbon pricing or carbon taxes is often difficult due to the potential adverse near-term economic and social impacts . From a political economy point of view, one reason is taxes on carbon could harm those voters and special interests, reducing the likelihood that a reform succeeds. Understanding the effects of carbon price hikes across income groups can help to design and implement more effective energy pricing policies.This research estimates the direct and indirect welfare impacts across income quintiles of pricing carbon in 10 Latin America and the Caribbean countries. In addition, we show how governments can mitigate the negative social consequences of carbon taxes by recycling revenues into enhanced cash transfer programs.

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