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Metcalf Department of Economics Tufts University2c%$(<$QFriedrich Ebert Foundation Financing for Development Office UN-DESA June 17, 2008RZR!Reducing Greenhouse Gas Emissions""(Many policy approaches to reducing GHG emissions Carbon Tax Cap and Trade Systems Regulatory Approaches All raise the cost of energy use Concern about price impact on poor617D17D Tax BurdenA tax is regressive if it takes a larger share of income from the poor than from the rich A tax is progressive if it takes a larger share of income from the rich than from the poor B Q H Concerns with a Carbon TaxAny carbon price will disproportionately impact the poor Carbon tax is essentially an energy tax Energy a larger share of household budget in poor households A regressive tax This is a problem with cap and trade systems as well as a tax T9eO9e CAdvantages of a Carbon TaxRelatively easy to implement In major GHG emitting countries, bulk of emissions from fossil fuel use Price impact is known with certainty Impact determined by tax rate Transparent No hidden transferstH% H%   'Distributional Impacts Can Be Mitigated(((Carbon tax may be regressive A carbon tax reform need not be regressive Use carbon tax revenue to offset the impact on poor households 8H?H? Example From the United States($15 per ton CO2 tax on carbon emissions Environmental Earned Income Tax Credit A tax credit equal to 15 percent of wage income up to $560 (using 2003 data) Credit provided to all workers in family dOv@v  How the Credit WorksHousehold A has two workers that earn $10,000 and $3,000 respectively Workers receive credit of $560 and $450 respectively Credit equal to 7.8 percent of income Household B has two workers that earn $45,000 and $20,000 respectively Workers receive credit of $560 each Credit equal to 1.7 percent of income Credit is progressive  more valuable to poor households than rich households tGZ[ZGZJZOZG[GJO Who Pays the Carbon Tax? 4Who Gets the Environmental Earned Income Tax Credit?55( Net Burden  Net Burden#Giving Permits to the Energy Sector$$(Rebating the TaxThe approach described here is designed to lower the marginal tax rate on wage income This provides some efficiency benefits A per capita rebate would be even more progressive Trade-off between efficiency and equity -Applying This Concept in Developing Countries..(Carbon tax can be collected at the national or sub-national level A carbon tax dividend can be provided to each household based on family size No need to verify family income or measure energy consumption  Summing UpA carbon tax may be regressive A carbon tax reform can be distributionally neutral How the carbon tax revenue gets used is crucial for distributional considerations Carbon tax revenue can offset the impacts on poor households   0` 33` Sf3f` 33g` f` www3PP` ZXdbmo` \ғ3y`Ӣ` 3f3ff` 3f3FKf` hk]wwwfܹ` ff>>\`Y{ff` R>&- {p_/̴>?" dd@,|?" dd@   " @ ` n?" dd@   @@``PR    @ ` ` p>> $(    60  `}  T Click to edit Master title style! !  03  `  RClick to edit Master text styles Second level Third level Fourth level Fifth level!     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Metcalf.-@Arial-. *2 3!Department of Economics.-@Arial-. 2 =4Tufts University.-@Arial-. .2 L,Friedrich Ebert Foundation.-@Arial-. 72 T" Financing for Development Office.-@Arial-.  2 \CUN.-@Arial-.  2 \K-\.-@Arial-.  2 \NDESA.-@Arial-. 2 e= June 17, 2008.---%)BxB--'--%*jyj--'՜.+,D՜.+,d     On-screen ShowIG' ArialTimes New RomanDefault DesignMicrosoft Office Excel ChartcProtecting the Poor With a Carbon Tax Gilbert E. Metcalf Department of Economics Tufts University"Reducing Greenhouse Gas Emissions Tax BurdenConcerns with a Carbon TaxAdvantages of a Carbon Tax(Distributional Impacts Can Be MitigatedExample From the United StatesHow the Credit WorksWho Pays the Carbon Tax?5Who Gets the Environmental Earned Income Tax Credit? 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