Policy Briefs

CHIPS POLICY BRIEF No 1: Distributional effects and acceptability of carbon taxes in the European Union. December 2021. download

Carbon taxes, either implemented directly or through high fuel taxes, have long existed in European jurisdictions. If the European Union were to implement a comprehensive carbon tax across all member states, however, it would disproportionately raise the expenditure of the poorest 40% of European households, mainly from the poorest countries. Recycling revenues through compensation transfers can offset this disproportionate burden, using just 7% of the total carbon tax revenue. The net impact of this scheme would be neutral at the European level, and with equal-per-capita transfers, the carbon tax burden would become progressive.

The paper is based on

Feindt, S., U. Kornek, J.M. Labeaga, T. Sterner, H. Ward (2021). Understanding regressivity: Challenges and opportunities of European carbon pricing. In: Energy Economics, 2021; https://doi.org/10.1016/j.eneco.2021.105550.