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Distributional impacts of carbon pricing on sub-Saharan African households

12.04.2022 14:00 CET Seminar Series of the Economics Dept.

Ein Vortrag von Sinem Ayhan (IOS and IZA) im Rahmen der Seminarreihe des AB Ökonomie am IOS.
This paper provides ex-ante evidence on distributional consequences of carbon pricing in sub-Saharan African countries. We empirically evaluate welfare losses due to carbon pricing in the absence of a revenue-recycling scheme across- and within-income groups, using household expenditure surveys and carbon intensity data from Ghana, Nigeria, and Uganda. Carbon pricing is progressive in all three countries, but there is within-income group variation matters more than across-group variation. The heterogeneity is greater in the upper tail of the distribution than the lower tail. Energy expenditures are decisive for distributional outcomes, with increasing budget shares of direct energy consumption explaining the progressivity to a large extent. By the means of an inequality decomposition of the carbon tax incidence, we identify fossil fuels to be the most important contributing factor despite country-level heterogeneity in its subcomponents (i.e., petroleum, natural gas/LPG). Among poorer households, public transportation and expenditure on durables are also important contributing factors of the inequality in carbon tax burden, besides the direct energy consumption. The large role of energy-intensive goods and public transportation in explaining both the vertical and horizontal variations in welfare effects of carbon pricing can be reflected in the ownership of motor vehicles and electrical household appliances. For the design of effective compensation measures, it would be important to tailor climate policies taking into account those country- and income group-specific factors. In a scenario of a simple revenue-recycling scheme, lump-sum transfers compensate almost all households in the bottom quintile.

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