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Environ Resource Econ (2010) 46:359376 DOI 10.1007/s10640-010-9345-x
Who Pays a Price on Carbon?
Corbett A. Grainger Charles D. Kolstad
Accepted: 19 February 2010 / Published online: 30 March 2010 The Author(s) 2010. This article is published with open access at Springerlink.com
Abstract We use the 2003 Consumer Expenditure Survey and emissions estimates from an input-output model based on the 1997 US economy to estimate the incidence of a price on carbon induced by a cap-and-trade program or carbon tax in the context of the US. We present results on how much different 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. 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.
Keywords Distributional incidence Carbon tax Tradable permits
JEL Classication Q52 Q58 H22
C. A. Grainger (B)
Department of Economics, University of California, Santa Barbara, CA, USAe-mail: [email protected]: http://www.econ.ucsb.edu/grainger
C. A. GraingerDepartment of Agricultural and applied Economics, University of Wisconsin, Madison, USA
C. D. KolstadDepartment of Economics and Bren School of Environmental Science and Management, University of California, Santa Barbara, CA, USAe-mail: [email protected]: http://www.ckolstad.org
C. D. Kolstad Resources for the Future, Washington, DC, USA
C. D. KolstadNational Bureau of Economic Research, Cambridge, MA, USA
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1 Background
There are currently several proposals being considered in the US Congress for a national greenhouse gas policy in the United States, and legislation may be enacted under the Obama Administration. Although there are proposals for a national tax on carbon, most proposed policies rely on a national cap and trade program for limiting and reducing carbon emissions. Like a carbon tax, a cap and trade program for greenhouse gas emissions has the effect of inducing a price on carbon; this means that for the rst time in the US a price will be placed on each ton of CO2 emitted. That price per unit of CO2 emitted will ultimately be paid by consumers, shareholders, and workers. Even though an electric utility...