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Rethinking the equity and efficiency of carbon tax: A novel perspective

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  • Jia, Zhijie
  • Lin, Boqiang
  • Liu, Xiying

Abstract

Previous research has generally concluded that carbon tax is regressive, despite its efficacy in reducing emissions. This paper takes a deeper dive to explore the validity of this assertion and proposes alternative approaches to enhance the efficiency of carbon tax without revenue recycling. Our argument asserts that the efficiency of a carbon tax can be determined by adjusting tax coverage. Furthermore, we find that taxing solely on energy production industries rather than the entire industry can significantly improve mitigation efficiency. Our findings also indicate that the carbon footprint and the emissions per unit cost for a given energy source account for the observed regressivity. Specifically, the wealthy consume commodities with higher carbon footprints, an indirect and invisible factor. However, it is important to note that the poor allocate a significantly greater proportion of their budget toward energy consumption, which is a visible and direct concern. Based on these findings, we provide several policy implications.

Suggested Citation

  • Jia, Zhijie & Lin, Boqiang & Liu, Xiying, 2023. "Rethinking the equity and efficiency of carbon tax: A novel perspective," Applied Energy, Elsevier, vol. 346(C).
    • Handle: RePEc:eee:appene:v:346:y:2023:i:c:s0306261923007110
    DOI: 10.1016/j.apenergy.2023.121347
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    More about this item

    Keywords

    CO2 emissions mitigation; Carbon tax; Computable general equilibrium model; China Energy-Economy-Environment Analysis (CEEEA) model; Equity and efficiency; Distribution effect;
    All these keywords.

    JEL classification:

    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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