Retrospective Analysis of U.S. Climate
Policy:
Distributional Impacts of a Carbon Tax
Resources For the Future
September 19, 2013
Gilbert E. Metcalf
Department of Economics
Tufts University
1
Questions for a Retrospective Analysis
• Positive Questions
What is the framework for the incidence analysis?
Who bears the burden of carbon tax?
• Normative Questions
What is the appropriate trade-off between efficiency
and equity?
What redistributional goals should be achieved?
2
Setting the Parameters of Analysis
•
•
•
•
Type of distributional analysis?
Distribution over what?
Measurement issues?
Areas for further study?
3
What Do We Mean By “Burden”?
$/ton
CO2e
MAC
Carbon tax
revenue
Cost of
reductions
0
25
100
Emission
Reduction (%)
4
Distributional Heterogeneity
•
•
•
•
Income classes
Intergenerational
Geographic regions
Industry groups
5
Incidence Analysis
• Absolute Incidence
– Views tax in isolation
• Balanced Budget Incidence
– Revenue used for new spending programs (RGGI,
AB32)
• Differential Tax Incidence
– Revenue neutral reform
• (Distributional allocation of benefits)
6
Absolute Analysis
4.0
3.6
3.1
3.0
2.4
2.5
Differential Analysis
2.0
1.8
2.0
1.5
1.5
1.4
1.2
4.0
1.0
1.0
0.8
0.5
0.0
1
2
3
4
5
6
7
8
9
10
Decile
3.0
Percentage of Income
Percentage of Income
3.5
2.0
1.0
0.0
1
2
3
4
5
6
7
8
9
10
-1.0
4.0
-2.0
Percentage of Income
3.0
Decile
Explicit rebate to Social
Security beneficiaries
2.0
1.0
Tax Reform:
0.0
1
2
3
4
5
6
7
8
-1.0
9
10
•
Carbon tax revenue used to provide a
capped reduction in payroll taxes
-2.0
Decile
Balanced Budget Analysis
Source: Metcalf (2007)
Intergenerational Effects
Intergenerational impacts of a debt reduction $30/ton CO2 tax by
birth year
100
50
CO2 tax in lieu of a
capital tax hike
2030
2025
2020
2015
2010
2005
2000
1995
1990
1985
1980
1975
1970
1965
1960
1955
1950
1945
$/year NPV
0
CO2 tax in lieu of a
labor tax hike
-50
CO2 tax in lieu of
VAT tax hike
-100
CO2 tax with lump
sum transfer
-150
-200
Birth Year
Carbone, Morgenstern, Williams, and Burtraw (2013)
Geographic Incidence in MRIO
new york
new york
california
new england
pacific
mountain
north east
south east
florida
north central
texas
south central
california
new england
pacific
mountain
north east
south east
florida
north central
texas
south central
0
.2
.4
.6
.8
CO2 intensity of consumption (kg/$)
0
.1
.2
.3
.4
Indirect non-energy CO2 intensity of cons. (kg/$)
Direct fossil fuel
Indirect fossil fuel
Electricity
Indirect non-energy
Caron, Metcalf, and Reilly (2013)
9
MI
TX
NY
IL
PA
CA
KY
FL
NC
VA
NJ
WI
GA
TN
MD
WV
MO
AL
LA
MN
SC
MA
WA
KS
IA
AZ
CO
OK
CT
UT
OR
IN
MS
NV
DE
AR
NE
ND
NM
ME
NH
RI
MT
VT
SD
AK
WY
HI
ID
DC
Trade Flows From Ohio
0.08
0.07
0.06
0.05
0.04
0.03
0.02
0.01
0.00
Caron, Metcalf, and Reilly (2013)
10
State Level Policy
new england
new york
mid-atlantic
south east
florida
midwest
north central
south central
texas
mountain
pacific
california
-500
0
500
Embodied CO2 (Mt)
1,000
in exports
in cons. from local prod.
in imports
Caron, Metcalf, and Reilly (2013)
11
Industry Impacts
• Bovenberg and Goulder (2001) find that
partial allocation of free permits preserves
equity values
– Coal: 4.3%
– Oil and Gas: 15.0%
– Note that this is a permanent allocation
• Metcalf (2013) finds that corporate tax
reductions financed by carbon tax
disproportionately benefit EITE sectors
12
Methodological Considerations
• Metric for ranking households
• Measuring burden (changes in: tax payments,
after-tax income, welfare?)
• Incorporating intergenerational analysis into
official methodologies
• Subnational policy and tax and emission
exporting
• Baseline counterfactual
• Forward and backward shifting
– Impacts on old and new capital
13
Areas for Methodological Advance
• Richer treatment of shifting assumptions for
carbon pricing
• Tax exporting at the national and sub-national
level
• Integration of carbon policy in broader
discussion of intergenerational burden
analysis
• Consideration of how burdens will be tracked
in the case of sub-national policies
14