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Distributional Impacts of Carbon Pricing Policies under Paris Agreement: Inter and Intra-Regional Perspectives

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  • Chepeliev, Maksym
  • Osorio Rodarte, Israel
  • van der Mensbrugghe, Dominique

Abstract

Achievement of the stringent global greenhouse gas emissions reduction target, like the one outlined in the Paris Climate Agreement, is associated with significant implementation costs and could impact different dimensions of human well-being. In this paper, we analyze the poverty and distributional impacts of different carbon pricing mechanisms consistent with reaching the Paris Agreement targets. We link a global recursive dynamic computable general equilibrium model ENVISAGE with the GIDD microsimulation model and explore three levels of mitigation effort and five carbon pricing options (trade coalitions). Results suggest that while there is a higher incidence of poverty in all scenarios, mainly driven by lower economic growth, Nationally Determined Contribution (NDC) policies result in progressive income distribution at the global level. Such progressivity is caused not only by lower relative prices of food versus non- food commodities, but also by a general decline in skill wage premia. Achievement of the NDC targets without regional cooperation results in 0.45% increase in the number of people living in extreme poverty (below PPP$1.90/day) by 2030, while a more ambitious 2oC-consistent target increases this number to 1.25%. Global cooperation significantly eases the burden on poor, reducing the poverty headcount (additional number of people leaving in extreme poverty) by almost three times in the case of 2oC-consistent target and bringing it to the baseline scenario level in the case of NDC target. The global Gini coefficient falls between 0.01 and 0.04 percentage points depending on the mitigation effort and collaboration mode, while reduction in the Theil index is between 0.01 and 0.11 percentage points. Results also indicate that the reductions in inequality come mainly from reduction in income from top earners, as the results are much more sensitive to the NDC policies closer to the top of the income distribution.

Suggested Citation

  • Chepeliev, Maksym & Osorio Rodarte, Israel & van der Mensbrugghe, Dominique, 2021. "Distributional Impacts of Carbon Pricing Policies under Paris Agreement: Inter and Intra-Regional Perspectives," Conference papers 333274, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:333274
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    2. Sager, Lutz, 2023. "The global consumer incidence of carbon pricing: Evidence from trade," Energy Economics, Elsevier, vol. 127(PB).
    3. Maksym Chepeliev & Thomas Hertel & Dominique van der Mensbrugghe, 2022. "Cutting Russia's fossil fuel exports: Short‐term economic pain for long‐term environmental gain," The World Economy, Wiley Blackwell, vol. 45(11), pages 3314-3343, November.
    4. Dogan, Berna & Tekgüç, Hasan & Yeldan, A. Erinç, 2022. "Towards A Green Income Support Policy: Investigating Social and Fiscal Alternatives for Turkey," Conference papers 333496, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    5. Chepeliev,Maksym & Maliszewska,Maryla & Osorio-Rodarte,Israel & Seara E Pereira,Maria Filipa & Van Der Mensbrugghe,Dominique, 2022. "Pandemic Climate Mitigation, and Reshoring : Impacts of a Changing Global Economy on Trade, Incomes,and Poverty," Policy Research Working Paper Series 9955, The World Bank.
    6. Maksym Chepeliev, 2023. "GTAP-Power Data Base: Version 11," Journal of Global Economic Analysis, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University, vol. 8(2), pages 100-133, December.
    7. Chepeliev, Maksym & Thomas Hertel & Dominique van der Mensbrugghe, 2022. "Cutting Russia’s Fossil Fuel Exports: Short-Term Pain for Long-Term Gain," GTAP Working Papers 6511, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
    8. Richard S. J. Tol, 2023. "Navigating the energy trilemma during geopolitical and environmental crises," Papers 2301.07671, arXiv.org.
    9. Han Wang & Yujie Jin & Xingming Hong & Fuan Tian & Jianxian Wu & Xin Nie, 2022. "Integrating IPAT and CLUMondo Models to Assess the Impact of Carbon Peak on Land Use," Land, MDPI, vol. 11(4), pages 1-16, April.
    10. Kitetu, Geoffrey M. & Ko, Jong-Hwan, 2022. "United States Re-enters the 2015 Paris Climate Agreement: The Unexpected Twists and the Opportunity Costs? A CGE Approach," Conference papers 333503, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    11. Okorie, David Iheke & Wesseh, Presley K., 2023. "Climate agreements and carbon intensity: Towards increased production efficiency and technical progress?," Structural Change and Economic Dynamics, Elsevier, vol. 66(C), pages 300-313.
    12. Jia, Zhijie & Wen, Shiyan & Liu, Yu, 2022. "China's urban-rural inequality caused by carbon neutrality: A perspective from carbon footprint and decomposed social welfare," Energy Economics, Elsevier, vol. 113(C).

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    Keywords

    Environmental Economics and Policy;

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • C83 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Survey Methods; Sampling Methods
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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