Conference Agenda

Taxes on the carbon embedded in households' consumption (footprint) can stimulate greener demand without triggering the competitiveness and carbon leakage issues often associated with taxing carbon on producers. While this is an appealing combination for the just transition plans of the European Union (EU), concerns about equity and public acceptance, as exemplified by the yellow-vest protests, remain. This paper assesses the potential redistributive consequences of various designs of an EU-wide carbon tax on households' carbon footprints, using harmonized microdata on income and expenditures alongside greenhouse gas intensities from an environmentally extended input-output model. Results from our micro-simulations suggest that a flat carbon tax would be regressive, and as such, inequality-increasing, in all EU countries. This is primarily due to the increasing shares of highly GHG-intense necessity goods, such as food and residential energy, towards the bottom of the distribution. Still, we show that inequality can be reversed with compensatory (revenue-recycling) cash transfers. More interestingly, we also show that more progressive tax designs could enable many countries to offset a large part of this negative redistributive effect without relying on cash transfers —an option often deemed infeasible in policy contexts.

Plastic waste management has become a major environmental challenge for small island economies characterized by high import dependence, limited recycling infrastructure, and strong structural inequalities. In this context, pay-as-you-throw (PAYT) schemes are increasingly promoted as policy instruments capable of reducing residual waste generation and improving sorting behavior. However, their broader macroeconomic and distributive implications remain insufficiently documented, particularly in insular territories. This study assesses the economic, environmental, and distributional impacts of a weight-based PAYT tax targeting unsorted plastic waste in Reunion Island. To do so, we develop a regional computable general equilibrium (CGE) model extended with a plastic waste and environmental module calibrated on a 2019 Social Accounting Matrix for Reunion Island. The model explicitly represents endogenous sorting behavior, heterogeneous household consumption patterns, physical plastic waste flows, and waste-related greenhouse gas emissions. Three alternative revenue recycling mechanisms are examined: reinvestment in the public waste collection sector, lump-sum transfers to households, and reductions in labor taxation. Results show that the PAYT policy substantially reduces unsorted plastic waste (approximately −14%) and decreases the carbon footprint associated with plastic waste management by approximately −13% across all scenarios. Macroeconomic and distributional outcomes, however, differ significantly depending on the revenue recycling strategy. Recycling revenues through labor tax reductions generates the strongest positive macroeconomic effects, whereas lump-sum redistribution to households negatively affects economic activity. Reinvestment in the public waste collection sector improves economic performance but generates regressive welfare effects for lower-income households. The findings highlight the importance of territorial specificities and revenue recycling mechanisms in designing environmentally effective and socially acceptable waste policies for small island economies.

Carbon pricing of essential energy services like heating is associated with concerns about the distributional effects on private households. Switching to low-carbon heating technologies such as heat pumps can relieve households of the burden of carbon pricing, but it is also associated with high upfront costs. This paper develops a microeconomic household model of carbon pricing with endogenous heating technology choice. Calibrating the model to German owner-occupier data, we study the distributional effects of carbon pricing with revenue recycling via lump-sum transfers and heat pump subsidies. We show that heat pump adoption slightly reduces the burden on households, but carbon pricing remains regressive. Moreover, it leads to less revenue available for compensating households. Therefore, redistributing revenues to households via lump-sum transfers -- in contrast to prior literature neglecting endogenous technology choice -- fails to yield a progressive distribution of welfare losses. Recycling revenues as heat pump subsidies further reduces revenues available for compensation by encouraging more households to switch to heat pumps such that regressivity is even more pronounced compared to lump-sum recycling. Our findings imply that achieving a progressive incidence of carbon pricing in the residential sector therefore may require a more targeted use of its revenues.

At a time where emissions are increasingly concentrated at the top of the distribution in many countries, the effects of carbon pricing as the central climate policy instrument on the distribution of emissions across households remain surprisingly unexplored. This paper develops a simple analytical model of heterogeneous households that allows isolating the mechanisms through which carbon pricing affects carbon inequality within countries. It shows that uniform carbon pricing can exacerbate consumption-based carbon inequality under certain conditions and characterizes the conditions under which differentiated pricing—i.e. taxing luxury goods at a higher rate than necessities—reverses this result. Furthermore, under inequality aversion, differentiated carbon pricing dominates uniform carbon pricing in welfare terms. The results underline the importance of considering not only who pays when designing and evaluating climate policies, but also who emits more and who decarbonizes.