CPLC Executive Brief: Distributional impacts of carbon pricing on households

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CPLC Online Workshop: Distributional Impacts of Carbon Pricing: Optimizing impacts with Climate Dividend Frameworks

Monday 18th May 2020, 8:30 (EST)/13:30 (BST)/14:30 (CEST) // Info/registration here

While carbon pricing policies aim to shift behavior towards low-carbon alternatives, they can also result in unintended distributional effects for households, especially when lower-cost alternatives are not available. The negative distributional impacts can be offset through specific policy design choices, but efforts to do so should not undermine the goal of incentivizing emissions reduction.

Some of the Key Messages of this brief are:

  • Carbon Pricing Instruments (CPIs) can have positive and negative socio-economic impacts on societies.
  • The extent of impacts varies across households, sections of societies and regions. It also depends on the level of policy ambition, design of the CPI, and local context.
    Well designed and carefully implemented climate change mitigation policies (including CPIs) have the potential to reduce poverty and provide opportunities to address gender, health and economic inequalities.
  • CPIs are more progressive in developing countries, where lower income groups have limited access to fossil fuels, compared to developed countries.
  • In countries where lower income groups use fossil fuel-based energies, the risk of negative impacts is greater when there are high levels of existing poverty and inequalities and when no action is taken to mitigate potentially adverse side-effects.
  • Possible negative distributional impacts of carbon pricing can be mitigated by adapting the design of the policy and using a portion of the carbon revenues to offset detrimental effects.
  • Efforts to minimize distributional impacts should not undermine the ultimate objective of reducing emissions.

The Carbon Pricing Leadership Coalition (CPLC) includes governments, businesses and civil society groups working together to identify and address the key challenges to successful use of carbon pricing as a way to combat climate change. As a strategic partner of CPLC, Climate Strategies works with other partners towards the long-term objective of a carbon price applied throughout the global economy. 

Also available at the CPLC website

Author: D. Phylipsen, A. Anger-Kraavi, C. Mukonza
Year: 2020
Type: Policy briefs
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