Who Pays a Price on Carbon?
We use the 2003 Consumer Expenditure Survey and emissions estimates from an input-output model to estimate the incidence of a price on carbon induced by a cap-and-trade program or carbon tax in the US context. We present results on how much difference income deciles pay for a carbon tax as well as which industries see the largest increase in costs due to a carbon tax. We illustrate the main determinant of the regressivity: consumption patterns for energy-intensive goods. We find that a policy targeting CO2 from energy consumption is more regressive than a price on all emissions. Furthermore, on a per-capita basis a carbon price is much more regressive than calculations at the household level. We discuss policy options to offset the adverse distributional effects of a carbon emissions policy.
We would like to thank Don Fullerton, Matthew Kahn, Gilbert Metcalf, Peter Reiss, Margaret Walls, seminar participants, and two referees for comments. We are responsible for all errors. Grainger acknowledges financial support from the National Science Foundation, grant No. 0114437. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.
Corbett Grainger & Charles Kolstad, 2010. "Who Pays a Price on Carbon?," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 46(3), pages 359-376, July. citation courtesy of