A new NBER working paper promises to blow up the myth that it is primarily the wealthy that will bear the cost of taxes on carbon emissions. In “Who Pays a Price on Carbon?” Corbett A. Grainger and Charles D. Kolstad explore the possibility that “under either a cap-and-trade program that limits carbon emissions or a carbon tax that imposes an outright tax on these emissions, the poor may be among the hardest hit. Because they spend a greater share of their income on energy than higher-income families, households in the lowest fifth of the income distribution could shoulder a relative burden that is 1.4 to 4 times higher than that of households in the top fifth of the income distribution.”
One of the assumptions of the study is that “all costs are passed on to the consumer,” which seems to be appropriate given the state of things in the oil refining business, for instance. As Christopher Helman writes in Forbes, “Even though rising fuel costs and taxes can mostly be passed along, they depress demand for refining. That causes refining margins to implode.” This brings up another set assumptions in the NBER study, however, that doesn’t account for modifications in demand, worker wages, or investor returns.
The authors are also improbably sanguine about the possibility of using the government to redistribute tax revenues to the poor to offset the regressiveness of the tax: “A price on carbon could yield substantial government revenues, and careful recycling of these revenues could offset the regressive nature of a national GHG [greenhouse-gas] emissions policy.” These revenues could also form the basis for a whole new government bureaucracy, which is much more likely than “careful recycling.”
But even with all those caveats, the point that the poor are almost always disproportionately impacted by policy decisions like this is an important one, which raises moral considerations beyond the dominant paradigm surrounding the question of carbon emissions, which simply pits the the impoverished two-thirds world against the developed world.