Im­pact Se­ries: 02-23

The Distributional Effects of Carbon Pricing:
A Global View of Common but Differentiated Responsibilities


In this Kühne Impact Series, we focus on the distributional effects of climate action. We simulate the distributional effects of a global carbon tax - the optimal economic policy tool in the fight against climate change - with or without international redistribution schemes. Our main result is that the economic costs of climate action are disproportionately borne by poor countries, but that realistic cross-country transfers could remedy this inequality. For example, annual North-South transfers of an average $200 per person would suffice to equalize the economic costs of climate action.

Full Article

Econ­o­mists have long ad­vo­cat­ed for car­bon pric­ing as the op­ti­mal pol­i­cy re­sponse to cli­mate change. The idea is to raise the costs of green­house gas (GHG) emis­sions from their pri­vate to their so­cial lev­els by im­pos­ing a glob­al and uni­form tax on the amount of CO2 emit­ted by pro­duc­tion and con­sump­tion. To quote No­bel lau­re­ate Jean Ti­role: “Since the emis­sion of a ton of green­house gas­es caus­es the same en­vi­ron­men­tal dam­age, wher­ev­er, when­ev­er and how­ev­er it is emit­ted, a sin­gle glob­al price for CO2 should guide pub­lic and pri­vate agents in their in­vest­ment, pro­duc­tion and con­sump­tion de­ci­sions.”1

Po­lit­i­cal­ly how­ev­er, this no­tion of a sin­gle com­mon price is strong­ly con­test­ed for at least two rea­sons.

First, the en­vi­ron­men­tal dam­ages of GHG emis­sions are in fact high­ly un­equal across the globe, as demon­strat­ed re­peat­ed­ly by the In­ter­gov­ern­men­tal Pan­el on Cli­mate Change (IPCC) in the re­port of their sec­ond work­ing group.2 To para­phrase the 6th As­sess­ment Re­port, re­gions and peo­ple with con­sid­er­able de­vel­op­ment con­straints have high vul­ner­a­bil­i­ty to cli­mat­ic haz­ards. Glob­al hotspots of high hu­man vul­ner­a­bil­i­ty are found par­tic­u­lar­ly in West, Cen­tral and East Africa, South Asia, Cen­tral and South Amer­i­ca, and Small Is­land De­vel­op­ing States.

Sec­ond, his­tor­i­cal con­tri­bu­tions to glob­al warm­ing and cu­mu­la­tive stocks of GHG in the at­mos­phere are also ex­treme­ly het­ero­ge­neous across coun­tries and lev­els of de­vel­op­ment. Since the In­dus­tri­al Rev­o­lu­tion (1751 is com­mon­ly tak­en as start­ing point), the world has emit­ted over 1.5 tril­lion tonnes of CO2.3 As of 2020, it was es­ti­mat­ed that 25% of this amount was emit­ted sole­ly by the Unit­ed States (400 bil­lion tonnes), and 22% by the 28 coun­tries of the EU, as de­pict­ed in Fig­ure 1. Chi­na is the sec­ond largest na­tion­al con­trib­u­tor with cu­mu­la­tive emis­sions of 238 bil­lion tonnes, but their con­tri­bu­tion only picked-up in the 1960s. Many of the large an­nu­al emit­ters to­day (e.g., In­dia, and Brazil) are not large con­trib­u­tors his­tor­i­cal­ly. Africaʼs re­gion­al con­tri­bu­tion has been very small rel­a­tive to its pop­u­la­tion size.

De­vel­op­ing coun­tries have there­fore pushed for decades for a dif­fer­en­ti­at­ed con­tri­bu­tion of coun­tries in the fight against cli­mate change, rec­og­niz­ing that they suf­fer the most from cli­mate im­pacts, while hav­ing con­tributed the least to the prob­lem. This no­tion was first for­mal­ized in the Unit­ed Na­tions Frame­work Con­ven­tion on Cli­mate Change (UN­FC­CC) of Earth Sum­mit in Rio de Janeiro in 1992, with the prin­ci­ple of – Com­mon but Dif­fer­en­ti­at­ed Re­spon­si­bil­i­ties (CBDR). It ac­knowl­edges that all states have a shared oblig­a­tion to ad­dress en­vi­ron­men­tal de­struc­tion but de­nies equal re­spon­si­bil­i­ty of all states with re­gard to en­vi­ron­men­tal pro­tec­tion.

Differentiated responsibilities recognize that developing countries suffer the most from climate impacts, while having contributed the least to the problem.

In this Kühne Im­pact Se­ries, we pro­pose a quan­ti­ta­tive analy­sis of this rea­son­ing. In a first part, we sim­u­late the dis­tri­b­u­tion­al ef­fects of a glob­al and com­mon car­bon tax (op­ti­mal cli­mate pol­i­cy) of $100/tCO2 and show that the eco­nom­ic costs of cli­mate ac­tion are dis­pro­por­tion­ate­ly borne by poor coun­tries. In a sec­ond part, we ex­plore var­i­ous in­ter­na­tion­al schemes aimed at de­liv­er­ing cli­mate jus­tice and ar­gue that re­al­is­tic trans­fers can rem­e­dy this.

Economic costs of climate action are disproportionately borne by poor countries.

The distributional effects of a global and common carbon tax that ignores the CBDR principle strongly favors developed countries

A glob­al and com­mon car­bon tax im­plies that one tonne of CO2eq. emit­ted over the course of the pro­duc­tion process costs the same dol­lar amount to the pro­duc­er (and ul­ti­mate­ly to the con­sumer) “wher­ev­er, when­ev­er and how­ev­er it is emit­ted.” In prac­tice, dif­fer­ences in pro­duc­tion emis­sion in­ten­si­ties (how much CO2eq. is emit­ted for each dol­lar pro­duced) will gen­er­ate dif­fer­ences in the ef­fec­tive cost of car­bon across pro­duc­ers, and dif­fer­ences in the con­sump­tion bas­ket of in­di­vid­u­als (in terms of goods and ser­vices con­sumed and ori­gins of pro­duc­tion) will in­duce dif­fer­ences in the ef­fec­tive car­bon cost across con­sumers.

Fig­ure 2 il­lus­trates this by pre­sent­ing the ef­fec­tive tax rate paid by dif­fer­ent coun­tries in the con­text of a glob­al and com­mon $100/tCO2 car­bon tax, that is, the frac­tion of a coun­tryʼs in­come ef­fec­tive­ly spent on the car­bon tax. There is no am­bi­gu­i­ty as to the fact that the high­est ef­fec­tive tax rates are paid by low-in­come coun­tries such as Myan­mar (8.6%), In­done­sia (5.1%), sub-Sa­ha­ran Africa (largest group in the ROW ag­gre­gate, with a rate of al­most 5%), and mid­dle-in­come coun­tries (e.g., Ar­genti­na with a rate of 3% or Mex­i­co with a rate of 2.1%). High-in­come coun­tries on the oth­er hand have low ef­fec­tive rates, with Switzer­land hav­ing the low­est ef­fec­tive tax rate at less than 0.5% of their in­come, and the largest EU mem­bers such as France and Ger­many all hav­ing a rate low­er than or equal to 1%.

The highest effective tax rates are paid by low-income countries while high-income countries have low effective rates.

The im­me­di­ate con­se­quence o f high­er ef­fec­tive tax rates are low­er lev­els of real in­come. Fig­ure 3 plots the change in real in­come fol­low­ing the im­ple­men­ta­tion of the car­bon tax against per-capi­ta GDP.

A dot above the 0 hor­i­zon­tal line is a coun­try whose real in­come in­creas­es in re­sponse to the car­bon tax, where­as a coun­try be­low that line will ex­pe­ri­ence a net real-in­come de­crease. The dis­tri­bu­tion of coun­tries around this line il­lus­trates quite clear­ly the so­cio-eco­nom­ic in­equal­i­ties aris­ing when im­ple­ment­ing a glob­al uni­form price on the ton of car­bon: there is a sig­nif­i­cant neg­a­tive re­la­tion­ship be­tween per-capi­ta GDP and real-in­come cost. In oth­er words, poor­er coun­tries ex­pe­ri­ence larg­er neg­a­tive eco­nom­ic loss­es from ad­just­ing to the tax, where­as high-in­come coun­tries have al­most no change in real in­come or even real in­come gains (e.g. Ire­land, South Ko­rea or Italy all stand above the no-real-in­come-change line).

Fo­cus­ing on re­gion-spe­cif­ic dy­nam­ics, we can see that Africa, South Amer­i­ca and to some ex­tent Asia are very clear­ly con­cen­trat­ed in the bot­tom left of the plot that rep­re­sents poor coun­tries with large neg­a­tive real-in­come ad­just­ments. In­ter­est­ing­ly, even with­in the rich­er re­gions that are Eu­rope and North Amer­i­ca, fur­ther analy­sis re­veals that this neg­a­tive cor­re­la­tion be­tween wealth and real-in­come ad­just­ment ex­ists re­gion­al­ly.

Au­thorʼs own work.

To ex­plain this ef­fect, the com­par­i­son across coun­tries with dif­fer­ent lev­els of de­vel­op­ment re­veals two im­por­tant facts: (i) coun­tries with low­er lev­els of de­vel­op­ment tend to be tech­no­log­i­cal­ly brown­er and emit more in any giv­en pro­duc­tion sec­tor per dol­lar pro­duced, and (ii) coun­tries with low­er lev­els of de­vel­op­ment tend to spe­cial­ize in a sub­stan­tial­ly brown­er mix of sec­tors.4 More specif­i­cal­ly, poor­er coun­tries are of­ten more up­stream in in­ter­na­tion­al val­ue chains, pro­vid­ing raw ma­te­ri­als that are no­tably more car­bon-in­ten­sive than oth­er sec­tors. Be­cause do­mes­tic pro­duc­tion of­ten rep­re­sents a very large frac­tion of do­mes­tic ex­pen­di­ture, this is also re­flect­ed in poor coun­triesʼ con­sump­tion bas­kets.

To our first point, by mak­ing pro­duc­tion and con­sump­tion rel­a­tive­ly more ex­pen­sive in poor coun­tries with cur­rent­ly large emis­sions, the car­bon tax will in­duce a re­al­lo­ca­tion of glob­al out­put away from de­vel­op­ing coun­tries to­wards green­er de­vel­oped coun­tries. In re­sponse to a $100/tCO2 glob­al and uni­form car­bon tax, real gross out­put is de­clin­ing in all coun­tries, for an ag­gre­gate de­cline of 2.6%, but with large vari­a­tions across coun­tries. The largest out­put de­clines are con­cen­trat­ed on South­east Asian coun­tries (e.g., –16.3% for Myan­mar, –9.2% for Chi­na, –9.1% for In­dia) or in the eco­nom­ic South (e.g., –10.4% for South Africa, –7.9% for Tunisia), while coun­tries in the North and the West see lit­tle de­cline in quan­ti­ties pro­duced (e.g., –0.6% for Switzer­land, –0.9% for France, –1.4% for the U.S.). These net changes pos­i­tive­ly cor­re­late with the over­all car­bon in­ten­si­ty of the coun­tries: Myan­mar ranks amongst the brownest coun­tries in the world where­as Switzer­land amongst the green­est.

The over­all im­pact on a coun­tryʼs out­put of the car­bon tax goes be­yond the net de­cline of pro­duc­tion. To our sec­ond point, by also mak­ing brown­er sec­tors of pro­duc­tion rel­a­tive­ly more ex­pen­sive than green ones, the car­bon tax also in­duces a re­al­lo­ca­tion of do­mes­tic pro­duc­tion away from brown sec­tors to­wards green ones, both in­ter­na­tion­al­ly across coun­tries, and do­mes­ti­cal­ly with­in a giv­en coun­try.

As sug­gest­ed by Fig­ure 4, this ef­fect is par­tic­u­lar­ly se­vere on poor coun­tries with a rel­a­tive­ly brown­er sec­toral com­po­si­tion of pro­duc­tion. Each bar rep­re­sents the share of each coun­tryʼs la­bor force that has to move from one sec­tor of pro­duc­tion to an­oth­er one do­mes­ti­cal­ly. In oth­er words, it rep­re­sents the amount of work­ers that are forced to change their eco­nom­ic ac­tiv­i­ty with­in a coun­try.5 While be­ing sim­plis­tic by con­struc­tion, such a met­ric hints at the po­ten­tial costs in terms of hu­man cap­i­tal and pos­si­ble un­em­ploy­ment that the car­bon tax could im­pose with­in coun­tries, and rep­re­sents the po­ten­tial­ly large dis­rup­tions in the in­ter­nal fab­ric of a coun­try.

The fig­ure clear­ly shows that the rich­est coun­tries (EU mem­bers, USA, Japan, South Ko­rea) ex­pe­ri­ence very lit­tle dis­rup­tions in terms of work­force re­al­lo­ca­tion: less than 1% of their pop­u­la­tion is re­al­lo­cat­ed to a dif­fer­ent sec­tor. On the oth­er hand, BRICS ex­pe­ri­ence la­bor force ad­just­ments in the range of 4 to 8% of na­tion­al pop­u­la­tion. As the col­ors in the plot re­veal, the low-in­come coun­tries are by far the most af­fect­ed.

To sum­ma­rize, the eco­nom­ic costs of the op­ti­mal cli­mate pol­i­cy, a glob­al and uni­form tax on car­bon emis­sions, are dis­pro­por­tion­ate­ly borne by poor­er coun­tries – be it in terms of the ef­fec­tive tax paid, the real-in­come re­sponse to the tax or the do­mes­tic dis­rup­tions. In the con­text of our quan­ti­ta­tive analy­sis, it there­fore ap­pears rel­e­vant to con­sid­er pos­si­ble ap­pli­ca­tions of the prin­ci­ple of Com­mon but Dif­fer­en­ti­at­ed Re­spon­si­bil­i­ties.

Realistic cross-country transfers can remedy the socio-economic inequalities induced by climate action but require higher climate pledge

At the 15th Con­fer­ence of Par­ties (COP15) of the UN­FC­CC in Copen­hagen in 2009, de­vel­oped coun­tries com­mit­ted to a col­lec­tive goal of mo­bi­liz­ing $100 bil­lion per year by 2020 for cli­mate ac­tion in de­vel­op­ing coun­tries, in the con­text of mean­ing­ful mit­i­ga­tion ac­tions and trans­paren­cy on im­ple­men­ta­tion. The goal was for­mal­ized at the COP16 in Can­cun, and at the COP21 in Paris, it was re­it­er­at­ed and ex­tend­ed to 2025.

Ac­cord­ing to the lat­est mon­i­tor­ing re­port of the OECD, a to­tal of USD 83.3 bil­lion in cli­mate fi­nance was pro­vid­ed and mo­bi­lized by de­vel­oped coun­tries in 2020, falling short of the pledged amount.6 The fail­ure to op­er­a­tional­ize the prin­ci­ple of Com­mon but Dif­fer­en­ti­at­ed Re­spon­si­bil­i­ties, and doubts about the ef­fec­tive­ness of trans­fers in the ab­sence of mar­ket-based in­cen­tives have been pro­posed as ar­gu­ments for the lack of stronger en­gage­ment from de­vel­oped coun­tries.

In the con­text of our quan­ti­ta­tive analy­sis, we there­fore ex­plore what trans­fers would be need­ed in a world where a glob­al and uni­form car­bon tax is adopt­ed, in or­der to bal­ance the so­cio-eco­nom­ic cost of the tax. We pro­pose two sce­nar­ios: (i) one where the goal is to equal­ize real-in­come changes in re­sponse to the car­bon tax for all coun­tries – we call it the equal-costs sce­nario – and (ii) one where coun­tries with the largest re­spon­si­bil­i­ty in cu­mu­la­tive glob­al car­bon emis­sions pay the largest eco­nom­ic costs – we call it the pol­luter­pays sce­nario. Our first sce­nario would thus be a sim­ple bench­mark for per­fect equal­i­ty in cli­mate ac­tion, where­as our sec­ond sce­nario aims at ap­ply­ing the CBDR prin­ci­ple. Note that the use of a glob­al and uni­form car­bon tax as op­ti­mal pol­i­cy tool is not put in ques­tion here. As a re­sult, these sce­nar­ios should be per­ceived as bench­marks for per­haps more re­al­is­tic poli­cies.

Equality in front of climate action can be attained with modest per-capita transfers

Our equal-costs sce­nario fo­cus­es on at­tain­ing equal­i­ty in re­sponse to a glob­al car­bon tax by de­sign­ing mon­e­tary trans­fers such that the coun­try-lev­el im­pact of the tax in terms of real-in­come change is the same for every­one. Note that this sce­nario does not im­ple­ment the CBDR prin­ci­ple, as it does not ac­count for dif­fer­en­ti­at­ed re­spon­si­bil­i­ties. It only en­sures that at min­i­ma poor coun­tries do not bear the bulk of the eco­nom­ic costs.

Quan­ti­ta­tive­ly it is strik­ing to note that the over­all im­pact of the glob­al com­mon car­bon tax paired with mon­e­tary trans­fers is de fac­to smoother than with­out trans­fers: the re­duc­tion of glob­al emis­sions achieved is the same (–27.5%) for iden­ti­cal ag­gre­gat­ed re­al­in­come costs (–0.7%). In ad­di­tion, the gross-out­put de­cline is low­er (–2.1% com­pared with –2.6% pre­vi­ous­ly).

Fig­ure 5 il­lus­trates how the equal-costs trans­fers are dis­trib­uted across coun­tries.

With the ex­cep­tion of the two out­liers that are Bahrain and Sau­di Ara­bia, the fig­ure re­veals that de­vel­oped coun­tries have to pay a mon­e­tary trans­fer to de­vel­op­ing coun­tries in or­der to equal­ize the eco­nom­ic cost of a glob­al car­bon tax: the largest pay­ers are Eu­ro­pean coun­tries and the U.S., while the largest re­ceivers are Rus­sia, South Africa and South­east Asian coun­tries.7

In the com­par­i­son with the “USD 100 bil­lion per year” pledge of the suc­ces­sive COPs, our mod­el sug­gests that in the pres­ence of a glob­al car­bon tax, the trans­fers need­ed to equal­ize the eco­nom­ic costs of cli­mate ac­tion across coun­tries amount to USD 272 bil­lion. While this is sub­stan­tial­ly larg­er than the lat­est pledge achieved (by a fac­tor 3), the im­pact this would have on the pop­u­la­tion of de­vel­oped coun­tries is in fact rel­a­tive­ly mod­est. The high­est trans­fers need to be paid by Ire­land in the amount of $2,000 per per­son per year, and by Switzer­land in the range of $1,400 per per­son per year. For the rest of the EU mem­bers and the U.S., the ef­fec­tive amount that should be paid by an in­di­vid­ual in a year does not ex­ceed $1,000. Note that be­cause poor coun­tries tend to have larg­er pop­u­la­tions, the ef­fec­tive trans­fers re­ceived per capi­ta are low­er (e.g., $600 per capi­ta for Kaza­khstan, less than $200 for Laos and In­done­sia).

The equal-costs sce­nario there­fore sug­gests that in ab­sence of any geopo­lit­i­cal con­sid­er­a­tion, so­cio-eco­nom­ic equal­i­ty in the face of op­ti­mal cli­mate ac­tion can be achieved with mod­est trans­fers.

A polluter-pays transfer scenario is less costly and just as effective in balancing the economic costs of climate action as a fair tax

The tone gen­er­al­ly set in the 2022 Con­fer­ence of Par­ties of the UN­FC­CC (COP27) sug­gests that sim­ple fair­ness in the dis­tri­bu­tion of the eco­nom­ic costs of cli­mate ac­tion is po­lit­i­cal­ly not enough. While 30 years old, the prin­ci­ple of Com­mon but Dif­fer­en­ti­at­ed Re­spon­si­bil­i­ties has only re­cent­ly been brought back as lead­ing prin­ci­ple of cli­mate ac­tion, in par­tic­u­lar in the Paris Agree­ments. Our pol­luter-pays sce­nario aims at quan­ti­ta­tive­ly sim­u­lat­ing it.

The “com­mon” part of CBDR is still achieved through the im­ple­men­ta­tion of a glob­al and uni­form car­bon tax. Note that while im­pos­ing that the cost of car­bon re­mains the same “wher­ev­er, when­ev­er and how­ev­er it is emit­ted”, it also en­sures that mar­ket-based in­cen­tives are pre­served through an ad­just­ment of r el­a­tive p rice sig­nals. The “dif­fer­en­ti­at­ed” part of CBDR is then achieved in the form of mon­e­tary trans­fers: quan­ti­ta­tive­ly, we cal­cu­late trans­fers such that the re­al­ized real-in­come cost borne by a coun­try is pro­por­tion­al to its his­tor­i­cal con­tri­bu­tion to glob­al cu­mu­la­tive emis­sions, as rep­re­sent­ed in Fig­ure 1. In prac­tice, this means that the eco­nom­ic cost of the glob­al car­bon tax for the U.S. needs to be 25% of the ag­gre­gate eco­nom­ic costs, the eco­nom­ic cost for Chi­na 13%, and the eco­nom­ic cost of Brazil 1% of the ag­gre­gate eco­nom­ic cost of the car­bon tax.

The economic cost of the global carbon tax for the U.S. needs to be 25% of the aggregate economic costs, for China 13%, and for Brazil 1%.

As for the equal-costs sce­nario, the over­all im­pact of the pol­luter-pays sce­nario is also smoother than cli­mate ac­tion with­out re­dis­tri­b­u­tion: the glob­al re­duc­tion of emis­sions re­mains at –27.5%, the glob­al real-in­come cost re­mains at –0.7%, and the de­cline in gross out­put re­mains low­er at –2.1%.

In terms of trans­fers, three im­por­tant facts can be em­pha­sized. First, the to­tal amount of trans­fers re­quired is slight­ly low­er than in the fair-tax sce­nario at USD 255.7 bil­lion. This is be­cause the equal-costs sce­nario is fo­cused sole­ly on re­dis­trib­ut­ing eco­nom­ic costs equal­ly, where­as the pol­luter-pays sce­nario al­lows for un­equal eco­nom­ic costs based on his­tor­i­cal re­spon­si­bil­i­ty. As a re­sult, per-capi­ta trans­fers will also be low­er, the max­i­mum amount re­quired be­ing now less than $2,000 per per­son per year (still paid by Ire­land).8

Sec­ond, the dis­tri­bu­tion of trans­fers across coun­tries still im­plies that de­vel­oped coun­tries should pay and de­vel­op­ing coun­tries should re­ceive, as is il­lus­trat­ed in Fig­ure 6. There is a clear pos­i­tive cor­re­la­tion be­tween cur­rent per-capi­ta GDP and his­tor­i­cal con­tri­bu­tion to glob­al cu­mu­la­tive emis­sions. This should­nʼt come as a par­tic­u­lar sur­prise as coun­tries that ben­e­fit­ed from the In­dus­tri­al Rev­o­lu­tion start­ed to emit CO2 dur­ing the 19th cen­tu­ry and have now the high­est lev­els of de­vel­op­ment.

Third, the dif­fer­ences in the dis­tri­bu­tion of trans­fers im­plied by the equal-costs and by the pol­luter-pays sce­nar­ios (com­par­ing Fig­ures 5 and 6) are re­veal­ing of coun­triesʼ cur­rent and his­tor­i­cal re­spon­si­bil­i­ties in cli­mate change.

Coun­tries that ought to pay a trans­fer in the equal-costs world re­main pay­ers in the pol­luter-pays sce­nario, but their rel­a­tive con­tri­bu­tions change, to re­flect in­di­vid­ual coun­triesʼ weight in his­tor­i­cal emis­sions. For ex­am­ple, Franceʼs ef­fec­tive trans­fer per capi­ta is now low­er than that of Great Britain, be­cause Franceʼs his­tor­i­cal en­er­gy sec­tor has fo­cused on car­bon-neu­tral nu­clear pow­er, while Great Britainʼs en­er­gy mix has been his­tor­i­cal­ly borne by coal and lat­er oil and gas.

Sim­i­lar­ly, re­ceiv­ing coun­tries in the equal-costs sce­nario re­main so in the pol­luter-pays sce­nario, al­beit re­ceiv­ing dif­fer­ent amounts. This is for ex­am­ple the case of Rus­sia: be­cause Rus­sia is a large pro­duc­er of nat­ur­al gas (which be­longs in our data to the en­er­gy sec­tor, by far the brownest in terms of emis­sion in­ten­si­ty), it is heav­i­ly pe­nal­ized by the car­bon tax (see Fig­ure 2, Rus­sia has an ef­fec­tive tax rate of 6% when the glob­al car­bon tax is set at $100/tCO2). In the equal-costs sce­nario, Rus­sia re­ceived trans­fers of the or­der of $404 per capi­ta, in or­der to bring its real-in­come cost to par with oth­er coun­tries. Rus­sia is, how­ev­er, also a his­tor­i­cal pol­luter so that in the pol­luter-pays sce­nario, its ef­fec­tive per-capi­ta trans­fers are de­creased to less than $80 per per­son per year. The op­po­site is true of Brazil: cur­rent­ly the third largest ex­porter of agri­cul­tur­al prod­ucts glob­al­ly, Brazilʼs real-in­come loss in re­sponse to a $100/tCO2 with­out re­dis­tri­b­u­tion is rel­a­tive­ly high (–1.8%, to be com­pared to the glob­al cost of –0.7%). In the equal-costs sce­nario, this im­plies that Brazil re­ceives per-capi­ta trans­fers in the or­der of $115. How­ev­er, Brazil only re­cent­ly start­ed to con­tribute to cu­mu­la­tive emis­sions (al­beit at an ac­cel­er­at­ing rate, with a cur­rent con­tri­bu­tion of 1%). This is tak­en into ac­count in the pol­luter-pays sce­nario so that Brazil re­ceives per-capi­ta trans­fers of the or­der of $170 in this case.

One con­stant in the com­par­i­son be­tween the two sce­nar­ios is that coun­tries that were re­ceivers in the equal-costs sce­nario re­main re­ceivers in the pol­luter-pays sce­nario, and pay­ers re­main pay­ers. This sug­gests that a pol­luter-pays scheme could per­haps be a bet­ter re­dis­tri­b­u­tion mech­a­nism: fair­ness is still some­what achieved, while re­spect­ing the po­lit­i­cal­ly de­sired prin­ci­ple of Com­mon but Dif­fer­en­ti­at­ed Re­spon­si­bil­i­ties.

More broad­ly, the con­clu­sion of these two quan­ti­ta­tive sim­u­la­tions is that achiev­ing ef­fi­cient but fair cli­mate ac­tion is not an un­re­al­is­tic goal. By com­bin­ing a mar­ket-based com­mon price in­cen­tive with dif­fer­en­ti­at­ed and mod­er­ate trans­fers (on av­er­age $200 per per­son year­ly from the North to the South), one can achieve sub­stan­tial emis­sions re­duc­tion and bal­ance the so­cio-eco­nom­ic costs of cli­mate ac­tion across coun­tries. Con­sid­er­ing the fail­ure of dif­fer­en­ti­at­ed cli­mate pledges in the ab­sence of a com­mon pol­i­cy ap­plied by all, one can hope that such quan­ti­ta­tive study can serve as an in­spir­ing bench­mark for pol­i­cy mak­ing.

Achieving efficient but fair climate action is not an unrealistic goal.


In this Kühne Im­pact Se­ries, we quan­ti­fy the so­cio-eco­nom­ic in­equal­i­ties in­duced by cli­mate ac­tion. We show that the eco­nom­ic cost of a glob­al and uni­form car­bon tax – the op­ti­mal eco­nom­ic pol­i­cy tool to fight cli­mate change – is dis­pro­por­tion­ate­ly borne by poor and de­vel­op­ing coun­tries. Our quan­ti­ta­tive analy­sis re­veals, how­ev­er, that mod­er­ate mon­e­tary trans­fers across coun­tries can rem­e­dy this. In par­tic­u­lar, an ap­pli­ca­tion of the prin­ci­ple of Com­mon but Dif­fer­en­ti­at­ed Re­spon­si­bil­i­ties through a pol­luter-pays com­bi­na­tion of tax and trans­fers is just as ef­fi­cient at re­duc­ing emis­sions and en­sures a po­lit­i­cal­ly de­sir­able re­dis­tri­b­u­tion of the costs of cli­mate ac­tion.

  1. Car­bon Pric­ing of a Cli­mate Coali­tion. 2016. Jean Ti­role. TSE, In­sti­tute for Ad­vanced Study in Toulouse.
  2. Cli­mate Change 2022: Im­pacts Adap­ta­tion and Vul­ner­a­bil­i­ty. 2022. IPCC Sixth As­sess­ment Re­port, Work­ing Group II.
  3. Who has con­tributed most to glob­al CO2 emis­sions? Our world in data: https://our­worldin­da­­tributed-most-glob­al-co2
  4. For an overview of emis­sion in­ten­si­ty across coun­tries and sec­tors, see our Kühne Im­pact Se­ries «Buy Green Not Lo­cal: How In­ter­na­tion­al Trade Can Help Save Our Plan­et» (03/2021).
  5. In our mod­el, one key as­sump­tion is that la­bor is im­mo­bile across coun­tries. This means that our quan­ti­ta­tive analy­sis does not al­low for eco­nom­ic mi­gra­tion across coun­tries, which may cause our mod­el to over­es­ti­mate la­bor dis­rup­tions (if eco­nom­ic mi­gra­tion means less in­ter­nal moves) or un­der­es­ti­mate wel­fare costs (if eco­nom­ic mi­gra­tion is as­so­ci­at­ed with wel­fare loss­es in ei­ther the send­ing or the re­ceiv­ing coun­try).
  6. Ag­gre­gate Trends of Cli­mate Fi­nance Pro­vid­ed and Mo­bilised by De­vel­oped Coun­tries in 2013-2020. 2022. OECD
  7. Bahrain and Sau­di Ara­bia are strong out­liers. While be­ing al­ready quite rich, they are heav­i­ly pe­nal­ized by the car­bon tax as their main eco­nom­ic ac­tiv­i­ty is oil pro­duc­tion (al­beit with the green­est emis­sion in­ten­si­ties in the data for the sec­tors of min­ing and en­er­gy). Since our sce­nario only cares about mak­ing the eco­nom­ic cost of the tax equal across coun­tries, and ig­nores en­tire­ly geopo­lit­i­cal con­sid­er­a­tions, they be­come large ben­e­fi­cia­ries of such trans­fers.
  8. Bahrain and Sau­di Ara­bia re­main out­liers in this sce­nario too. This is again be­cause they are dis­pro­por­tion­ate­ly pe­nal­ized by the car­bon tax rel­a­tive to their his­tor­i­cal con­tri­bu­tion to cu­mu­la­tive emis­sions.


Mathilde Le Moigne

Senior Research Fellow at the Kühne Center for Sustainable Trade and Logistics at the University of Zurich


Simon Lepot

Senior Research Fellow at the Kühne Center for Sustainable Trade and Logistics at the University of Zurich


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