Distributional Effects of Carbon Allowance Trading: How Government Decisions Determine Winners and Losers

Posted: 9 Dec 2001

See all articles by Terry M. Dinan

Terry M. Dinan

Government of the United States of America - Microeconomic and Financial Studies Division

Diane Lim Rogers

Joint Economic Committee, Democratic Staff

Abstract

If the U.S. should limit carbon dioxide emissions, an allowance trading policy may offer one method of achieving that goal in a cost-effective manner. The distributional effects of such a program could be large, far in excess of the actual cost to the economy. This paper examines how two key decisions that the government would need to make in designing a carbon trading program would determine those distributional effects. Those decisions are how to allocate the allowances and how to use the revenue that the government would receive under alternative allocation strategies. Distributional effects are estimated for both domestic and international trading programs. We distribute deadweight losses due to policy-induced declines in both carbon consumption and factor supplies. Further, we separate the distributional effects associated with government carbon consumption from private sector carbon consumption. Finally, we highlight the problems in measuring distributional effects that are caused by poor data on households' consumption and income.

Keywords: carbon dioxide, climate change, allowance trading

JEL Classification: D44, H22, H23, Q25, Q28, Q48

Suggested Citation

Dinan, Terry M. and Lim Rogers, Diane, Distributional Effects of Carbon Allowance Trading: How Government Decisions Determine Winners and Losers. Forthcoming in National Tax Journal. Available at SSRN: https://ssrn.com/abstract=289944

Terry M. Dinan (Contact Author)

Government of the United States of America - Microeconomic and Financial Studies Division ( email )

Ford House Office Building, Room 495
2nd & D Streets, SW
Washington, DC 20515-6925
United States
202-226-2927 (Phone)
202 226 0207 (Fax)

Diane Lim Rogers

Joint Economic Committee, Democratic Staff ( email )

Ford House Office Building
2nd & D Streets, SW
Washington, DC 20515
United States
202 224 5171 (Phone)

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