Who Bears the Economic Burdens of Environmental Regulations?

A well-developed literature in public economics studies tax incidence—the ultimate distributional impacts of taxes. We draw on this literature to examine not only the distributional effects of environmental taxes or subsidies, but also the likely incidence of nontax regulations such as energy efficiency standards or other environmental mandates. We describe how the distributional effects of environmental policies can be altered by various market conditions, including limited factor mobility, trade exposure, evasion, corruption, or imperfect competition. Finally, we apply these lessons to study carbon policy around the world, as we examine the potential distributional consequences of a worldwide carbon tax on countries with different carbon intensities and different levels of per capita income.