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The Unequal Economic Consequences of Carbon Pricing

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  • Diego R. Känzig

Abstract

This paper studies the economic impacts of carbon pricing. Exploiting institutional features of the European carbon market and high-frequency data, I document that a tighter carbon pricing regime leads to higher energy prices, lower emissions and more green innovation. This comes at the cost of a fall in economic activity, which is borne unequally across society: poorer households lower their consumption significantly while richer households are less affected. The poor are more exposed because of their higher energy share and, importantly, also experience a larger fall in income. Targeted fiscal policy can help alleviate these costs while maintaining emission reductions.

Suggested Citation

  • Diego R. Känzig, 2023. "The Unequal Economic Consequences of Carbon Pricing," NBER Working Papers 31221, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:31221
    Note: EEE EFG ME
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    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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