The Distributional Implications of a Carbon Tax in Ireland

 

ESRI Working Paper - 'The Distributional Implications of a Carbon Tax in Ireland' - has been published.

Climate policy necessarily increases the price of energy - either explicitly through taxes or tradable permits, or implicitly by mandating the use of different fuels from those that a free market would choose. As energy is a necessary good, climate policy is regressive - it will disproportionally harm poorer households.

Therefore, there should be additional policy reform to offset the negative effects of climate policy on the distribution of income. The ESRI paper investigates this issue for a carbon tax and revenue recycling for the Republic of Ireland.

The authors study the effects of carbon tax and revenue recycling across the income distribution in the Republic of Ireland. In absolute terms, a carbon tax of 20/tCO2 would cost the poorest households less than 3/week and the richest households more than 4/week. A carbon tax is regressive, therefore.

However, if the tax revenue is used to increase social benefits and tax credits, households across the income distribution can be made better off without exhausting the total carbon tax revenue.

To download the paper - 'The Distributional Implications of a Carbon Tax in Ireland' - Click Here