The distributional impacts of a carbon tax: balancing sustainability
and justice
Joshua FarleyCommunity Development and Applied Economics
Gund Institute for Ecological EconomicsUniversity of Vermont
Outline of Talk
Supply and demand for carbon emissions
Price rationing of essential resources: market efficiency and inequality
CO2 emissions by sector and income: likely distributional impacts
How should revenue be spent? Dividends Vermonter poll Other options
Supply Curve
Must sum together all costs: labor, capital, biodiversity loss, climate
change, etc.
(marginal cost)
CO2 emissions
levels
under
dis
cuss
ion
(16-
41%
)
Safe
level (8
0%
re
duct
ion)
Demand Curve Energy essential to all economic
production Agriculture alone emits more GHGs than
planet can absorb Barrel of oil = ~5000 hrs. human labor
National push your car to work day Highly inelastic demand
Large change in price has small impact on quantity
Small change in quantity has large impact on price
Demand Curve for Essential Resources(e.g. food)
Value: low and stable
Trade-offs: relatively unimportant benefits
Value: shift from marginal to total value (e.g. diamond-water paradox)
Trade-offs: Life sustaining benefits
Value: Increasing rapidly with decreasing quantity.
Trade-offs: Resilience, increasingly important benefits
phys
iolo
gic
al t
hres
hold
: e.
g. s
tarv
atio
n
Op
port
un
ity c
ost
Economic output (fossil fuel economy)
Market Efficiency, Unequal World
Is price rationing efficient for essential resources?Do we want to use the same logic for access to energy?
Economic output (fossil fuel economy)
Market Supply and Demand
Market supply ignoresecological costs
Market demand = preferences weighted by purchasing power
Eco
nom
ic t
hesh
old
P
rice
Energy use/CO2 emissions
Price + tax
cap
E
colo
gic
al
thesh
old
Price
Income inequality increasing fastest in New England
https://www.bostonfed.org/commdev/c&b/2007/fall/Gittell_Rudokas_New_%20England_income_gap.pdf
…and (almost) fastest in Vermont
Where do GHGs come from?
Car Fuel Expenditures by Decile
National Vermont Vermont after 7.27% reduction
“Many homes were constructed before high energy costs made many energy conservation practices and products cost effective.” 2010 VERMONT HOUSING NEEDS ASSESSMENT
Sales taxes very regressive
How Should Revenue be Spent? New Proposal: 90% returned directly to
households, businesses, and institutions; 10% for energy efficiency
RGGI: 99% energy efficiency
Impacts of dividend New study uses national data;
Vermont atypical, especially for transportation
Overestimates progressivity Would be very progressive at national
level
Other Options
Non-price rationing WWII Brazil vs. California
Vermont Common Assets Trust Progressive expenditures
Europe Energy efficiency offers triple impact:
$1 invested yields $3-4 RGGI Inc., 2011. Investment of Proceeds
from RGGI CO2 Allowances. Regional Greenhouse Gas Initiative. Online:
www.rggi.org/docs/Investment_of_RGGI_Allowance_Proceeds.pdf.
Naucler, T., Enkvist, P.A., 2009. Pathways to a Low-Carbon Economy - Version 2 of the Global Greenhouse Gas Abatement Cost Curve. McKinsey & Company.