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© 2022 International Monetary Fund
WP/22/116
IMF Working Paper
Fiscal Affairs Department
The Distributional Impact of a Carbon Tax in Asia and the Pacific
Prepared by Cristian Alonso and Joey Kilpatrick
Authorized for distribution by James Daniel
June 2022
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
ABSTRACT: While a carbon tax is widely acknowledged as an efficient policy to mitigate climate change, adoption has lagged. Part of the challenge resides in the distributional implications of a carbon tax and a belief that it tends to be regressive. Even when not regressive, poor households could be hurt by a carbon tax, particularly in countries that rely heavily on carbon-intensive energy sources. Using household surveys, we study how a carbon tax may affect households in the Asia Pacific region, the main source of CO2 emissions. We document a wide range of country-specific policies that could be implemented to compensate households, reduce inequality, and build support for adoption.
| JEL Classification Numbers: | E62, H22, H23, Q43, Q54 |
| Keywords: | COVID-19, banking performance, frms performance, sovereign-banks-economy nexus, bank asset quality |
| Author’s E-Mail Address: | CAlonso@imf.org, DKilpatrick@imf.org |
| JEL Classification Numbers: | E62, H22, H23, Q43, Q54 |
| Keywords: | COVID-19, banking performance, frms performance, sovereign-banks-economy nexus, bank asset quality |
| Author’s E-Mail Address: | CAlonso@imf.org, DKilpatrick@imf.org |
Title Page
WORKING PAPERS
The Distributional Impact of a Carbon Tax in Asia and the Pacific
Prepared by Cristian Alonso and Joey Kilpatrick1
ContentsContents
Glossary
Introduction
The Importance of Reducing CO2 Emissions in Asia and the Pacific
Methodology
The Impact of a Carbon Tax on Households in the Region
The Impact of a Carbon Tax on Households by Economy
China
India
Indonesia
Kiribati
Mongolia
Myanmar
Philippines
Other Economies in the Region
Conclusion
Annex I. Proxy Means Targeting
Annex II. Results of a $25 and $75 Carbon Tax
Annex III. Consistency of Household Surveys with Consumption in National Accounts
Annex IV. India: Robustness Accounting for Universal Electricity Access
References
FIGURES
1. Cumulative CO2 Emissions, 1750–2020
2. Share of Annual Fuel Combustion Emissions, 2001–2019
3. Per Capita Emissions from Fuel Combusiont, 2000–2019
4. Average Price per Ton of Carbon by Region, 2022
5. Increase in the Price of Energy Goods Induced by a Carbon Tax of $50 per Ton
6. Burden of Higher Prices by Quintile for a Carbon Tax of $50 per Ton
7. Burden of Higher Prices by Quintile and Income per Capita
8. Burden of Lower Labor Income
9. Burden of Higher Prices and Lower Labor Income by Quintile
10. Fiscal Revenues from a Carbon Tax
11. Share of Carbon Tax Revenues Needed to Compensate Poorest Households on Average
12. Share of Carbon Tax Revenues Needed to Improve Welfare for 50% of Households
13. Impact of a $50 per ton carbon tax on households in China
14. Impact of Alternative Compensation Schemes in China
15. Impact of a $50 per Ton Carbon Tax on Households in India
16. Impact of Alternative Compensation Schemes in India
17. Impact of a $50 per Ton Carbon Tax on Households in Indonesia
18. Impact of Alternative Compensation Schemes in Indonesia
19. Impact of a $50 per Ton Carbon Tax on Households in Kiribati
20. Impact of Alternative Compensation Schemes in Kiribati
21. Impact of a $50 per Ton Carbon Tax on Households in Mongolia
22. Impact of Alternative Compensation Schemes in Mongolia
23. Impact of a $50 per Ton Carbon Tax on Households in Myanmar
24. Impact of alternative compensation schemes in Myanmar
25. Impact of a $50 per Ton Carbon Tax on Households in the Philippines
26. Impact of Alternative Compensation Schemes in the Philippines
27. Impact of a $50 per Ton Carbon Tax via Higher Prices
A1. $25 Carbon Tax: Impact of Higher Prices on Households
A2. $75 Carbon Tax: Impact of Higher Prices on Households
A3. Share of Carbon Tax Revenues Needed to Compensate Poorest Households on Average
A4. Share of Carbon Tax Revenues Needed to Improve Welfare for 50% of Households
A5. Impact of a $50 Carbon Tax in India
TABLES
1. Household Surveys’ Summary Statistics
2. Compensating Measures
A1. Details About Application of PMT for Each Country
Glossary
| AAY-BPL | Antyodaya Anna Yojana- Below Poverty Line |
| BLT/BLSM | Bantuan Langsung Tunai/Bantuan Langsung Sementara Masyarakat |
| BSM | Bantuan Siswa Miskin |
| CPAT | Carbon Pricing Assessment Tool |
| ETS | Emissions Trading SystemScheme |
| GDP | Gross Domestic Product |
| GHG | Green House Gas |
| Hong Kong SAR | Hong Kong, Special Administrative Region |
| IEA | International Energy Agency |
| IMF | International Monetary Fund |
| LPG | Liquefied Petroleum Gas |
| NDC | Nationally Determined Contributions |
| OECD | Organization for Economic Cooperation and Development |
| PKPS BBM | Dalam Pencapaian Efektivitas Dana Program Kompensasi Pengurangan Subsidi Bahan Bakar Minyak |
| PMT | Proxy Means Testing |
| USD | United States Dollar |
| WEO | World Economic Outlook |
We are grateful for excellent comments from Elif Ceren Arbatli Saxegaard, Jean-Marc B. Atsebi, Edgar Buckley, Eduardo Camero Godinez, Hua Chai, Wenjie Chen, James Daniel, William Gbohoui, Koki Harada, Jehann Jack, Sarwat Jahan, Margaux MacDonald, Marina Mendes Tavares, Ian Parry, John Ralyea, Gregor Schwerhoff, Piyaporn (Nikki) Sodsriwiboon, Alberto Tumino, Ting Yan, and participants at the FAD seminar series.