Distributional Impacts of Low-Carbon Policies in USA and Spain: Does One Size Fits All?

Distributional impacts of environmental policies have become an increasingly important consideration in policymaking, but current studies have focused on just a few countries individually. To evaluate the country-specific impacts of carbon pricing with different revenue recycling schemes, we integrate national economic models for the USA and Spain with household microdata that provides consumption patterns and other socio-economic characteristics for thousands of households in each country. Using these combined models, we explore the applicability of results from one country to other countries by focusing on different revenue recycling schemes. We find that, with some exceptions, the USA and Spain overall show similar patterns of distributional impacts for the two revenue recycling schemes, despite their differences in size, existing tax structure, energy sources and prices, level of income inequality, consumption patterns, etc. We find that in both countries an equal household rebate has progressive welfare impacts that are positive for the majority of income ventiles while the payroll tax reduction tends to be proportional or slightly regressive. We also explore welfare impacts for different household classifications, the impact of the policy design on overall inequality, and the role of inequality aversion on the social welfare implications of the policy design. 1 MIT Joint Program on the Science and Policy of Global Change, Massachusetts Institute of Technology, Cambridge, MA, USA 2 Basque Centre for Climate Change (BC3), Leioa, Spain.