Who Pays a Price on Carbon?

Given the proposed US legislation the following paper is a timely piece of research.

The distributional effects of a carbon tax are worthy of further research.

Who Pays a Price on Carbon?

Corbett A. Grainger
University of California, Santa Barbara - Department of Economics

Charles D. Kolstad
University of California, Santa Barbara - Department of Economics

August 2009

NBER Working Paper No. w15239

Abstract:
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.

JEL Classifications: H22, Q43, Q5, Q52, Q53, Q54, Q58

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