Who Pays a Price on Carbon?

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.

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Acknowledgments

We would like to thank Don Fullerton, Josh Graff-Zivin, Matthew Kahn, Gilbert Metcalf, Peter Reiss, MargaretWalls, seminar and conference participants, and anonymous referees for comments. We are responsible for all errors. Grainger acknowledges financial support from the National Science Foundation, Grant No. 0114437.

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Correspondence to Corbett A. Grainger.

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Open Access This is an open access article distributed under the terms of the Creative Commons Attribution Noncommercial License (https://creativecommons.org/licenses/by-nc/2.0), which permits any noncommercial use, distribution, and reproduction in any medium, provided the original author(s) and source are credited.

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Grainger, C.A., Kolstad, C.D. Who Pays a Price on Carbon?. Environ Resource Econ 46, 359–376 (2010). https://doi.org/10.1007/s10640-010-9345-x

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Keywords

  • Distributional incidence
  • Carbon tax
  • Tradable permits

JEL Classification

  • Q52
  • Q58
  • H22