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Climate policy design, competitiveness and income distribution: A macro-micro assessment for 11 EU countries
[journal article]
Abstract Concerns about industry competitiveness and distributional impacts can deter ambitious climate policies. Typically, these issues are studied separately, without giving much attention to the interaction between the two. Here, we explore how carbon leakage reduction measures affect distributional outc... view more
Concerns about industry competitiveness and distributional impacts can deter ambitious climate policies. Typically, these issues are studied separately, without giving much attention to the interaction between the two. Here, we explore how carbon leakage reduction measures affect distributional outcomes across households within 11 European countries by combining an economy-wide computable general equilibrium model with a household-level microsimulation model. Quantitative simulations indicate that a free allocation of emission permits to safeguard the competitive position of energy-intensive trade-exposed industries leads to impacts that are slightly more regressive than under full auctioning. We identify three channels that contribute to this effect: higher capital and labour income; lower tax revenue for compensating low-income households; and stronger consumption price increases following from higher carbon prices needed to reach the same emissions target. While these findings suggest a competitiveness-equity trade-off, the results also show that redistributing the revenues from partial permit auctioning on an equal-per-household basis still ensures that climate policy is progressive, indicating that there is room for policy to reconcile competitiveness and equity concerns. Finally, we illustrate that indexing social benefits to consumer price changes mitigates pre-revenue-recycling impact regressivity, but is insufficient to compensate vulnerable households in the absence of other complementary measures.... view less
Keywords
EU; simulation; competitiveness; model; income distribution; climate protection; distribution impact; climate policy
Classification
Special areas of Departmental Policy
Ecology, Environment
Free Keywords
distributional impact; just transition; carbon leakage; CGE modelling; microsimulation; EU-SILC
Document language
English
Publication Year
2021
Page/Pages
p. 1-12
Journal
Energy Economics (2021) 103
DOI
https://doi.org/10.1016/j.eneco.2021.105538
ISSN
0140-9883
Status
Published Version; peer reviewed