Distributional Impacts of Low-Carbon Policies in USA and Spain: Does One Size Fits All?

Abstract:

The distributional impacts of low carbon policies have become particularly important in the environmental policy agenda, and different studies have focused on the issue of who bears the cost of environmental and climate protection. However, in recent decades, the bulk of the distributional literature has focused only on regional or single-country analysis. To our knowledge, there has been no in-depth analysis about the similar and different impacts between socio-economic groups in different countries or the role of the size of the country. In the context of the Paris Agreement, this paper tries to reduce this gap in the literature by analyzing and comparing the distributional impacts of several climate mitigation policies for USA and Spain.

Using economy-wide models, we analyze and compare the distributional and efficiency impacts of different carbon-related revenue allocation schemes for USA and Spain to assess the applicability and generalization of a region-specific study to other countries. We integrate two national computable general equilibrium (CGE) models with microdata, making it possible to capture a rich representation of the heterogeneity of households along with inter-sectoral and price-related effects, which are fundamental for analyzing the implications of low-carbon pathways. The strength of the CGE approach linked with micro-data is that we can capture both expenditure and income channel to explain the welfare impacts, and thus, we are able to explain better the distributional implications of low carbon policies. Our main objectives are to analyze if the impacts of climate mitigation policies on population groups are different in USA and Spain, and to study the role that the existing tax structure, energy prices, income inequality, and consumption patterns can play in determining the impacts. Our results can be relevant for decision-makers in these and other countries aiming to design efficient carbon-reducing policies.