Carbon Pricing and Household Welfare: Evidence from Uganda

60 Pages Posted: 6 Apr 2021 Last revised: 14 Jul 2021

See all articles by Raavi Aggarwal

Raavi Aggarwal

affiliation not provided to SSRN

Sinem Ayhan

IZA

Michael Jakob

Potsdam Institute for Climate Impact Research

Jan Christoph Steckel

Potsdam Institute for Climate Impact Research; Mercator Research Institute on Global Commons and Climate Change (MCC)

Date Written: March 31, 2021

Abstract

Policy makers frequently voice concerns that carbon pricing could impair economic development in the short-run, especially in low-income countries such as Uganda. We estimate a quadratic almost ideal demand system (QUAIDS) for energy and food items to assess how consumers’ welfare, energy and food demand, as well as nutritional intake, can be expected to react to a carbon price of US$40/ton. The results suggest overall progressive welfare effects in the range of 0.1 – 4.9% across the population. We further observe declines in the demand for electricity, kerosene and transport in the range of 4 – 20%, with concomitant shifts within food consumption baskets, due to complementarities with cooking fuels, and income effects. Heterogeneous demand responses across expenditure terciles and rural-urban areas reveal significant disparities in food and calorie consumption as well as protein and micronutrient intake due to carbon pricing. The bottom third of households exhibit nutritional declines of up to 16%, while middle-class urban households witness increases by around 9%. Complementary social protection policies in conjunction with carbon pricing could ease potentially adverse effects on economic development outcomes in Uganda.

Keywords: Consumer demand system, QUAIDS, carbon pricing, Sub-Saharan Africa, household welfare, distribution, sustainable development

Suggested Citation

Aggarwal, Raavi and Ayhan, Sinem and Jakob, Michael and Steckel, Jan and Steckel, Jan, Carbon Pricing and Household Welfare: Evidence from Uganda (March 31, 2021). Duke Global Working Paper Series No. 38, Available at SSRN: https://ssrn.com/abstract=3819959 or http://dx.doi.org/10.2139/ssrn.3819959

Raavi Aggarwal

affiliation not provided to SSRN

Michael Jakob

Potsdam Institute for Climate Impact Research ( email )

Telegraphenberg
Potsdam, Brandenburg 14412
Germany

Jan Steckel

Potsdam Institute for Climate Impact Research ( email )

Telegraphenberg
Potsdam, Brandenburg 14412
Germany

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

Torgauer Straße 12-15
Berlin, 10829
Germany

HOME PAGE: http://https://www.mcc-berlin.net/en/about/team/steckel-jan.html

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

Paper statistics

Downloads
179
Abstract Views
918
rank
230,297
PlumX Metrics