Distributional Effects of Emission Pricing in a Carbon-Intensive Economy: The Case of Poland

By Marek Antosiewicz; J. Rodrigo Fuentes; Piotr Lewandowski; Jan Witajewski-Baltvilks

http://d.repec.org/n?u=RePEc:ioe:doctra:546&r=dge

In this paper, we assess the distributional impact of introducing a carbon tax in Poland. We apply a two-step simulation procedure. First, we evaluate the economy-wide effects with a dynamic general equilibrium model. Second, we use a microsimulation model based on household budget survey data to assess the effects on various income groups and on inequality. We introduce a new adjustment channel related to employment changes, which is qualitatively different from price and behavioural effects, and is quantitatively important. We find that the overall distributional effect of a carbon tax is largely driven by how the revenue is spent: distributing the revenues from a carbon tax as lump-sum transfers to households reduces income inequality, while spending the revenues on a reduction of labour taxation increases inequality. These results could be relevant for other coal-producing countries, such as South Africa, Germany, or Australia.

Another paper on the carbon tax, and again it leaves unsatisfied. I am a big fan of carbon taxes, and it seems trivial to think that redistribution will depend on how the revenues are spent. What is really interesting is that Poland is currently very much dependent on coal for heating at the household level. The costs to convert to other technologies are substantial, hence the tax needs to be very high to have a bite. The household response will be much more complex than a microsimulation can yield because you are not talking about a small variation around existing allocations. This is going to be massive, and the resistance will be huge.