The global consumer incidence of carbon pricing: Evidence from trade | Lutz Sager

Lutz will be discussing his paper The Global Consumer Incidence of Carbon Pricing: Evidence from Trade.

Abstract

The consumer cost of carbon pricing is globally regressive, more so across countries than within—it falls harder on average consumers in poor countries than on poor consumers in average countries. I show this using a novel, global approach to estimating the consumer incidence of carbon pricing. On the demand side, I allow consumption to differ both between countries and across income levels within them. On the supply side, I model substitution of inputs along global value chains. I identify all model parameters from data on bilateral trade flows. Similar to a global carbon price, the introduction of the EU Emissions Trading System (ETS) in 2005 was likely regressive. The results are different for a carbon price on traded goods. The cost of a hypothetical Border Adjustment to complement the EU ETS follows an inverted U-shape—the richest and the poorest consumers in the EU incur the largest cost.