2.3 – who pays for climate policy?
Note: development in progress…
who pays for a carbon tax?
Economists tend to like market-based solutions because they are efficient. But, these policies are not necessarily equitable.
Both mitigation and adaptation raise justice concerns.
- Those who are most vulnerable to the negative impacts of climate change are those who bear little responsibility for causing it
- These groups are limited in their resources and capacity to cope with the effects of climate change; and
- This double injustice could become a triple injustice if the costs of the green transition negatively impact low-income and vulnerable groups.
Carbon taxes are often criticized for being regressive. Regressive taxes impose a larger burden on low-income households than high-income households. This is because low-income households spend a larger share of their income on energy-intensive goods and services. For example, low-income households spend a larger share of their income on gasoline than high-income households.
Carbon taxes have direct and indirect effects.
- A carbon tax might increase the cost of gasoline. This is a direct effect.
- An increase in the cost of cost of gasoline might increase the cost of your Lyft. This is an indirect effect.
We purchase energy directly, but we also purchase energy indirectly through consumption of energy-intensive goods and services. Carbon taxes will affect both margins. By some estimates, indirect effects can be ~50% of the total burden of carbon taxes
Carbon taxes can be made (more) progressive by using the tax revenue to offset the regressive impacts of the tax. For example, the government could rebate all of the tax revenue back to households. Alternatively, the government could use the tax revenue to reduce other taxes that are more regressive than the carbon tax.
Income is not the only type of equity we should be worried about. Many climate and policy impacts generate proportionally larger burdens along racial, gender, ethnicity, age, etc., dimensions by exacerbating existing inequalities.