The distributional impacts of a
carbon tax: balancing sustainability
and justice
Joshua Farley
Community Development and Applied Economics
Gund Institute for Ecological Economics
University 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
Must sum together all costs:
labor, capital, biodiversity
loss, climate
change, etc.
(marginal cost)
CO2 emissions
levels under discussion (16-41%)
Safe level (80% reduction)
Supply Curve
Demand Curve

Energy essential to all economic
production


Barrel of oil = ~5000 hrs. human labor


Agriculture alone emits more GHGs than
planet can absorb
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
Value: shift from
marginal to total
value (e.g.
diamond-water
paradox)
Trade-offs: Life
sustaining
benefits
physiological threshold: e.g. starvation
Opportunity cost
Demand Curve for Essential Resources
(e.g. food)
Value:
Increasing
rapidly with
decreasing
quantity.
Trade-offs:
Resilience,
increasingly
important
benefits
Value: low and stable
Trade-offs: relatively
unimportant benefits
Economic output (fossil fuel economy)
Market Efficiency, Unequal World
Economic output (fossil fuel economy)
Is price rationing efficient for essential resources?
Do we want to use the same logic for access to energy?
Price
cap
Market supply ignores
ecological costs
Economic theshold
Price + tax
Ecological theshold
Price
Market Supply and Demand
Energy use/CO2 emissions
Market demand =
preferences
weighted by
purchasing power
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?
National
th
a
n
$5
,0
00
to
$1
0,
$9
00
,9
0
99
to
$1
$1
5,
4,
00
99
0
9
to
$2
19
0,
,9
00
99
0
to
$3
$2
0,
9,
00
99
0
9
to
$4
$3
0,
9,
00
99
0
9
to
$5
$4
0,
9,
00
99
0
9
to
$6
$7
9,
0,
99
00
9
0
an
d
mo
re
$5
,0
00
Le
ss
Car Fuel Expenditure
Car Fuel Expenditures by Decile
3500.00
3000.00
2500.00
2000.00
1500.00
1000.00
500.00
0.00
Vermont
Incomeafter 7.27% reduction
Vermont
“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

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WWII
Brazil vs. California
Vermont Common Assets Trust
Progressive expenditures

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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.