Understanding Regressivity: Challenges and Opportunities of European Carbon Pricing

35 Pages Posted: 20 Nov 2020

See all articles by Simon Feindt

Simon Feindt

Mercator Research Institute on Global Commons and Climate Change (MCC)

Ulrike Kornek

University of Kiel; Potsdam Institute for Climate Impact Research (PIK)

J. Maria Labeaga Azcona

Universidad Nacional de Educacion a Distancia (UNED) - Faculty of Economics

Thomas Sterner

University of Gothenburg

Hauke Ward

Mercator Research Institute on Global Commons and Climate Change (MCC)

Date Written: October 2, 2020

Abstract

We examine how a European carbon price will affect citizens by studying the carbon tax incidence in 23 countries of the EU. At the national level, the distributional impact prior to revenue recycling is largely neutral, sometimes progressive. At an aggregate EU level, however, the impact is regressive because some low-income countries would be highly impacted if subjected to a common EU carbon price. While national redistribution can do much to make EU incidence progressive, we show that European-wide redistribution is more effective for especially affected households. We offer two indicators to offset regressive distributional effects of EU climate policy such as the recently proposed Green Deal. The first renders the tax burden proportional; the second focuses on compensating the households most seriously affected. Including both indicators in European redistribution makes for a better representation of the initial burden of carbon pricing and could make the policy more salient for citizens.

Keywords: Carbon Pricing, Distributional Effect, Household Data, European Union

JEL Classification: D57, H22, H23, Q52, Q54

Suggested Citation

Feindt, Simon and Kornek, Ulrike and Labeaga Azcona, José Maria and Sterner, Thomas and Ward, Hauke, Understanding Regressivity: Challenges and Opportunities of European Carbon Pricing (October 2, 2020). Available at SSRN: https://ssrn.com/abstract=3703833 or http://dx.doi.org/10.2139/ssrn.3703833

Simon Feindt (Contact Author)

Mercator Research Institute on Global Commons and Climate Change (MCC) ( email )

Torgauer Straße 12-15
Berlin, 10829
Germany

Ulrike Kornek

University of Kiel ( email )

Olshausenstr. 40
D-24118 Kiel, Schleswig-Holstein 24118
Germany

Potsdam Institute for Climate Impact Research (PIK) ( email )

Telegrafenberg 31
Potsdam, Brandenburg 14473
Germany

José Maria Labeaga Azcona

Universidad Nacional de Educacion a Distancia (UNED) - Faculty of Economics ( email )

Calle Senda del Rey, 11
28040 Madrid
Spain
+34 91 398 7811 (Phone)
+34 91 398 6339 (Fax)

Thomas Sterner

University of Gothenburg

Gothenburg
Sweden

Hauke Ward

Mercator Research Institute on Global Commons and Climate Change (MCC)

Torgauer Straße 12-15
Berlin, 10829
Germany

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
238
Abstract Views
699
rank
182,631
PlumX Metrics