Carbon Taxes: Which Households Gain or Lose? (2001-EEP/DS7-M1) Final Report prepared for the Environmental Protection Agency

July 1, 2004

Authors: Sue Scott , John Eakins

The discussion proceeds along the following lines. Section 2 looks at the direct impacts of the carbon tax on households in different income brackets and shows how these impacts are regressive, i.e. they make low-income households relatively worse off than high-income households. Broad types of compensation strategies for addressing this problem are then described in Section 3. How best to target vulnerable households is discussed in Section 4. In Section 5, using the compensation strategy and the selected targeting method, the net effects of the reform (the carbon tax net of compensation) are presented, enabling the gainers and the losers to be identified. Section 6 discusses other supporting measures that might be introduced to help losers and ease the transition to carbon taxes generally, and Section 7 closes the report.

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