Maie , So ía; De Poli, Sil ia; Amo es, An onio F.
Wo king Pape
Ca bon axes on consump ion: Dis ibu ional implica ions
o a jus ansi ion in he EU
JRC Wo king Pape s on Taxa ion and S uc u al Re o ms, No. 9/2024
P o ided in Coope a ion wi h:
Join Resea ch Cen e (JRC), Eu opean Commission
Sugges ed Ci a ion: Maie , So ía; De Poli, Sil ia; Amo es, An onio F. (2024) : Ca bon axes on
consump ion: Dis ibu ional implica ions o a jus ansi ion in he EU, JRC Wo king Pape s on
Taxa ion and S uc u al Re o ms, No. 9/2024, Eu opean Commission, Join Resea ch Cen e (JRC),
Se ille
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2024
JRC Wo king Pape s on Taxa ion and S uc u al Re o ms No 9/2024
Ca bon axes on consump ion:
dis ibu ional implica ions o a jus
ansi ion in he EU
JRC138420
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Execu i e summa y
O e he pas yea s, a consensus has been g owing ega ding, i s , he need o educe
g eenhouse gas (GHG) emissions o limi global wa ming and second, ha ca bon
p icing is a key ool o achie e his. Ye , ca bon axes o en ace public esis ance, as
e idenced by he yellow es mo emen , due o hei eg essi i y and pe cei ed
un ai ness.
This s udy uses mic o-simula ions o assess he dis ibu ional e ec s o a ious
hypo he ical ca bon axes on household consump ion ac oss he 27 EU Membe S a es.
We build on he con en ional li e a u e by simula ing mo e p og essi e ax s uc u es,
aiming o imp o ed dis ibu ional ou comes wi hou elying on compensa o y ans e s,
which a e o en o limi ed p ac ical easibili y.
Fo his pu pose, we ex end he EUROMOD ax-bene i model wi h household’s GHG
oo p in s, co e ing bo h di ec ( om uel use, such as hea ing o d i ing) and indi ec
( om p oduc ion and ade) emissions om he EXIOBASE mul i- egional inpu -ou pu
model. This G een EUROMOD ex ension allows us o e alua e al e na i e ca bon ax
e o ms (e.g., wi h p og essi e ax designs) wi hin a cohe en and s anda dized
amewo k using EU-HBS and EU-SILC da a ac oss all 27 EU Membe S a es.
Ou es ima es show ha household GHG emissions a y signi ican ly ac oss coun ies
and income g oups. No ably, only he lowes -income 10% o he EU popula ion exhibi s
consump ion pa e ns ha align wi h wha he li e a u e conside s sus ainable and
consis en wi h he goals o he Pa is Ag eemen , wi h pe capi a emissions a e aging
app oxima ely 2.5 onnes o CO₂ equi alen ( CO₂e) pe yea .
Simula ions o a la ca bon ax se a EUR 80 pe CO₂e sugges ha his measu e
would exace ba e inequali y ac oss all 27 EU Membe S a es. The ax's eg essi e
pa e n a ises om he g ea e ax bu den on lowe -income households, who alloca e a
la ge p opo ion o hei income o GHG-in ensi e goods such as ood and ene gy. The
ex en o his inequali y inc ease a ies by coun y, la gely due o he a ying ax
bu dens, which would ange om 2% o household disposable income in F ance and
Sweden o up o 9% in Hunga y, Poland, and G eece.
This la ca bon ax could gene a e e enues o up o EUR 208 billion annually. In line
wi h p e ious s udies, edis ibu ing his e enue ia lump-sum cash ans e s would
comple ely o se he ax's inequali y e ec s.
No ably, we also show ha a ca bon ax wi h allowances (i.e., whe e he i s 2.2 ons
o CO₂e a e ax exemp ed), and o a lesse ex en , a ca bon ax wi h a e di e en ia ion
(ac oss p oduc g oups, such as wi h VAT), pe o m ela i ely well in p e en ing la ge
inequali y-inc easing e ec s, wi hou elying on compensa o y measu es. As such, hese
al e na i e ax designs could enhance public accep abili y and policy easibili y o axing
household ca bon oo p in s o a jus ansi ion.
Ca bon axes on consump ion: dis ibu ional implica ions o a
jus ansi ion in he EU
So ía Maie 1,3, Sil ia De Poli1,2,*, and An onio F. Amo es1
1Eu opean Commission, Join Resea ch Cen e, Se ille, Spain
2Complu ense Uni e si y o Mad id, Spain
3An we p Uni e si y, Belgium
*Co esponding au ho : sdep[email p o ec ed]
Sep embe 16, 2024
Abs ac
Ca bon axes on household consump ion can simul aneously inc ease public unding and
p omo e g eene consump ion habi s, an appealing combina ion o he jus ansi ion plans
o he Eu opean Union (EU). Howe e , conce ns abou equi y and public suppo pose
challenges. This pape assesses he dis ibu ional and budge a y e ec s o a ious designs o
an EU-wide hypo he ical ca bon ax on households consump ion. To his end, we ex end he
EU ax-bene i mic osimula ion model, EUROMOD, wi h g eenhouse gas (GHG) emissions
da a om inpu -ou pu ables and es ima e households’ ca bon oo p in s. We show ha a
ca bon ax on households GHG emissions would be eg essi e, he eby inequali y-inc easing.
This is p ima ily due o he low income elas ici y o highly GHG-in ense necessi y goods,
such as ood and hea ing, which ep esen la ge sha es o income a he bo om o he
dis ibu ion. S ill, we demons a e ha his inequali y-inc easing impac can be o se wi h
compensa o y cash ans e s ( hough hese may be challenging o implemen ), and a leas
pa ially e e ed wi h mo e p og essi e (and p esumably easible) ax designs, including
a e di e en ia ion by p oduc s and ax allowances.
Keywo ds: P og essi e ca bon ax, Jus ansi ion, Foo p in s, Inequali y, Eu opean Union
JEL codes: H23, Q52, D31, C67
Acknowledgemen s: This pape was de eloped wi hin he AMEDI p ojec s o he Di ec o a e Gene al
o Employmen and Social A ai s o he Eu opean Commission. We ex end ou since e g a i ude o
Sal ado Ba ios and Richa d Wood o hei in aluable suppo o he G een EUROMOD p ojec . We
a e pa icula ly indeb ed o Ge linde Ve bis , whose p esen a ion a he JRC Fiscal Policy Wo kshop in
2020 inspi ed us o pu sue his esea ch, and o he eedback on he inal d a . Special hanks a e due o
José An onio O doñez, Da id Klene and Sal ado Ba ios o hei insigh ul eedback. We would also
like o hank he EUROMOD communi y o hei ongoing de elopmen o his powe ul mic o-simula ion
ool and i s unde lying ha monized mic o-da ase s. We a e g a e ul o Ma hias Wei zel o p o iding
in o ma ion om JRC-GEM-E3 on scena ios o he new 2040 a ge s. Finally, we would also like o hank
he pa icipan s o he 2023 EUROMOD Annual Wo kshop in Se ille o hei aluable con ibu ions.
We also wan o hank Ilda D eoni and Hannes Se uys o hei wo k on s a is ical ma ching.
1 In oduc ion
O e he pas yea s, a consensus has been g owing ega ding, i s , he need o educe g eenhouse gas
(GHG) emissions o limi global wa ming (S igli z e al.,2017;Pea ce,1991),1and second, ha ca bon
p icing is essen ial o achie e i (Hepbu n e al.,2020). Based on Pigou (1920)’s o iginal idea o inco po-
a ing ex e nali ies in o p ices, an en i e body o li e a u e has highligh ed he heo e ical a ac i eness
o ca bon p icing in e ms o e iciency (Hepbu n e al.,2020;Hassle e al.,2016;No dhaus,1991),
and p o ided empi ical e idence on hei posi i e causal e ec s on GHG emissions educ ion (see, e.g.,
Dechezlep ê e e al.,2023;Ande sson,2019;Ma in e al.,2016;Lin and Li,2011).
Ca bon p icing can be implemen ed downs eam a he p oduc ion le el, o ups eam, di ec ly o con-
sume s.2The mos common p ac ices ollow he i s app oach, p ima ily h ough cap-and- ade schemes
known as Emission T ading Sys ems (ETS) and ca bon axes. Acco ding o he Wo ld Bank’s Ca bon
P icing Dashboa d, abou 23% o global GHG in 2023 we e co e ed by ca bon p icing, 18% by ETS and
5% by ca bon axes (Wo ld Bank,2023). ETS se a cap on o al GHG emissions and allow i ms o
ade emission pe mi s, wi h he p ice o ca bon de e mined endogenously by he ma ke . In con as ,
ca bon axes ix he p ice and do no gua an ee any le el o GHG educ ion. Unlike ETS o o he ca bon
p icing mechanisms a ge ing p oduce s, consump ion-based ca bon axes do no exe ca bon leakages
o compe i i eness p oblems (Pa y e al.,2022,Nach igall e al.,2022,Böh inge e al.,2021,Hepbu n
e al.,2020,Böh inge e al.,2017). Mo e in gene al, o e enue- aising pu poses, en i onmen al axes
a e o en p e e ed o e o he ypes o axes, such as hose on labou , because hey add ess a ma ke
ailu e and a e he e o e conside ed less dis o iona y (Ba ios e al.,2013;Bo enbe g,1999).
In his pape , we o e esh insigh s in o he dis ibu ional (and budge a y) e ec s o a hypo he ical
ca bon ax on households’ ca bon oo p in s ac oss he 27 EU Membe S a es. By combining da a om
household su eys wi h and inpu -ou pu ables, we analyze he p og essi i y and edis ibu i e e ec s
o a ious ax designs and compensa o y measu es. In pa icula , we discuss whe he a p og essi e ax
s uc u e could enable go e nmen s o achie e a posi i e edis ibu i e impac wi hou elying on e enue-
ecycling compensa o y measu es, which a e o en challenging o implemen on poli ical and p ac ical
g ounds.
Ca bon axes a e a pa icula ly appealing ool in he cu en policy con ex because hey can, in p inciple,
simul aneously boos he de-ca boniza ion e o s he Eu opean Union (EU) is pu suing o achie e i s
objec i e o becoming he i s ca bon-neu al economy by 2050,3while imp o ing public inances o
implemen o he ansi ion- ela ed policies. Despi e he s ong educ ion in pe capi a GHG emissions
o he pas decades -d opping om 11 o 7 ons o CO2e, acco ding o he Eu opean En i onmen al
Agency),4 he ca bon oo p in s o EU households a e among he op in he wo ld and qui e abo e he
1This has led, among o he s, o he i s -e e in e na ional binding ag eemen in Pa is 2015, as a esul o he
Con e ence o Pa ies (COP) 21 (see: UNFCCC,2015).
2In he i s case ( he so-called “p oduce esponsibili y app oach”), p oduce s a e held esponsible only o all
he GHG emissions gene a ed di ec ly by hem. In he second (o “consume esponsibili y app oach”), based on
he oo p in concep , consume s a e held esponsible o all he GHG emissions gene a ed along he alue chain
o p oduce wha hey consume. Figu e A.1 in he Appendix p esen s an o e iew o hese wo s a egies.
3To mee i s 2050 clima e a ge s, he EU launched he “G een Deal”, which includes ca bon-p icing ini ia i es
like he Ca bon Bo de Adjus men Mechanism (CBAM) and he ex ension o he Emissions T ading Sys em
(ETS2). The CBAM, a ax on ca bon-in ensi e impo s, will s a in 2026, while ETS2, expanding he cu en
ETS o buildings and oad anspo , begins in 2026/27. Addi ionally, he Fi - o -55 package, aimed a a 55%
GHG emissions educ ion by 2030, p oposes e ising he Ene gy Taxa ion Di ec i e (ETD) o upda e minimum
ax a es based on CO2con en , a p oposal ha is s ill unde discussion.
4h ps://www.eea.eu opa.eu/da a-and-maps/da a/da a- iewe s/g eenhouse-gases- iewe
1
“sus ainable” le els compa ible wi h in e na ional ag eemen s ela ed wi h global wa ming (Chancel,2022,
Chancel e al.,2022,Go e,2021,I ano a e al.,2016, and Gi od e al.,2014). Fu he mo e, while he
EU has nea ly double he global a e age o 23% o GHG emissions co e ed by ca bon p icing (Eu opean
Commission,2022), mo e han hal o i s GHG emissions emain ax-exemp .
Ye , ca bon axes can be qui e unpopula , as he yellow es mo emen pu in clea e idence (Douenne
and Fab e,2022,Rubin and Sengup a,2018). In pa , his accep abili y p oblem ela es o he eg essi i y
and he pe cei ed un ai ness o hese axes (Köppl and Sch a zens alle ,2023;Ande sson,2019;Klene
and Ma auch,2016,Wang e al.,2016), on op o he lack o dissemina ion o in o ma ion on he ac ual
e ec o hese policies (Douenne and Fab e,2022;Klene e al.,2018;Mu ay and Ri e s,2015). The
Eu opean Commission has ecognized his challenge, as emphasized by i s P esiden du ing he adop ion
o he Eu opean G een Deal Communica ion in 2019: “This ansi ion will ei he be wo king o all and
be jus , o i will no wo k a all”.5S ill, as documen ed by he me a-analyses o Wang e al. (2016) and
Ohlendo e al. (2021), e idence on he eg essi i y o ca bon axes is limi ed and shows mixed esul s.
In his con ex , ou analysis makes wo impo an con ibu ions o he li e a u e, as ou lined below.
Fi s , we p o ide new e idence on he dis ibu ional and budge a y e ec s o a hypo he ical EU-wide
consump ion-based ca bon ax, co e ing all 27 EU Membe S a es. To his end, we ex end he EU
ax-bene i mic osimula ion model, EUROMOD,6by in eg a ing g eenhouse gas (GHG) emissions da a
de i ed om inpu -ou pu ables. Wi h his “G een EUROMOD” ex ension we es ima e households’
ca bon oo p in s, accoun ing o emissions linked o bo h domes ic p oduc ion and impo s, including
hose gene a ed h ough ade and anspo , a he e y de ailed p oduc le el. While he li e a u e
on ca bon p icing has g own apidly in ecen yea s (see o e iews by Wang e al.,2016,Ohlendo
e al.,2021 and Döbbeling-Hildeb and e al.,2024), mos s udies end o be coun y- o p oduc -speci ic
and employ a a ie y o me hodologies, making c oss-coun y compa isons di icul . Ou s udy le e ages
de ailed, ha monized da a om mul iple sou ces, add essing gaps in p e ious esea ch.
Second, while much o he exis ing li e a u e ocuses on compensa o y measu es like cash ans e s o
labo ax educ ions o households a ec ed by ca bon axes, ou s udy explo es al e na i e ax designs
ha aim o mo e p og essi e ou comes. This app oach a oids o e - eliance on compensa o y measu es,
which can be cos ly o adminis e and may ace low up ake, po en ially unde mining public suppo o
he ini ia i e.
The mos ela ed s udy o ou s is Feind e al. (2021), which epo s p og essi e pa e ns (a he coun y-
le el) om a simula ed ca bon ax in 23 EU coun ies. We ex end and depa om his pape in se e al
ways, by expanding coun y co e age, using mo e upda ed da a, conside ing all GHG emissions o he
ax base and no only CO2; and mo e undamen ally, a ying he ype o simula ed ax and using incomes
om SILC ins ead o expendi u es o assess he ax bu den, eg essi i y and dis ibu ional e ec s. This
di ec ly in luences he less eg essi e pa e ns hey iden i y, as discussed also by Maie and Ricci (2024)
and Linden e al. (2024).
We begin by simula ing a la ca bon ax o EUR 80 pe onne o CO2e on household consump ion. This
ax co e s di ec GHG emissions om household uel use as well as emissions embedded h oughou he
supply chain o goods and se ices, including hose om ab oad. The chosen ax a e o 80 EUR pe
CO2e is consis en wi h he p e ailing p ice unde EU ETS and aligns wi h he emissions educ ion
5See, e.g., speech a : h ps://ec.eu opa.eu/commission/p essco ne /de ail/ /speech_19_6749.
6EUROMOD is a publicly a ailable model de eloped by an in e na ional communi y o scien is s and policy-
make s since he 1990s. The ecen ex ensions o co e consump ion axes and GHG emissions a e no ye public,
bu shall be in he u u e. Mo e in o ma ion: h ps://eu omod-web.j c.ec.eu opa.eu/.
2
a ge s s ipula ed by he Pa is Ag eemen , as sugges ed by S igli z e al. (2017). We hen discuss o
wha ex en e enue-neu al compensa o y measu es could imp o e he dis ibu ional ou comes. Finally,
we simula e wo al e na i e ca bon ax egimes, whe e we y a less eg essi e design. Wi h his, we
a oid elying on a compensa o y measu e. Speci ically, we simula e a scena io wi h wha we call “g een
allowances” ( ax exemp ions below a h eshold, simila o he global p og essi e ax p oposed by Chancel
and Pike y,2015) and ano he consis ing o di e en ca bon ax a es ac oss p oduc ca ego ies, like he
di e en a es o VAT.
To simula e hese ca bon ax scena ios, we ex end he EUROMOD model wi h ca bon oo p in s, ollow-
ing wo main s eps. Fi s , we s a is ically ma ch wo EU-le el ha monized household su eys, EU-SILC
(EU S a is ics on Li ing Condi ions) and HBS (Household Budge Su eys), which p o ide de ailed da a
on household income and consump ion, espec i ely. Second, we impu e GHG emissions pe eu o spen
om EXIOBASE a a highly disagg ega ed p oduc le el in o ou HBS-SILC ma ched iles.7This G een
EUROMOD ex ension allows us o simula e a ious ca bon axes, conside ing each coun y’s iscal policies
and e alua ing hei dis ibu ional e ec s based on household disposable income. By using SILC-based
incomes, ou esul s can be di ec ly compa ed o he EU’s o icial igu es on income inequali y and po e y
published by Eu os a . While ou analysis does no accoun o beha io al esponses and should be in e -
p e ed as “o e nigh ” e ec s, he li e a u e sugges s ha demand esponses o p ice changes in necessi y
goods (e.g., ood and ene gy) a e ypically small in he sho un (Linden e al.,2024;Labandei a e al.,
2017). The e o e, we o e a eliable insigh in o he expec ed sho - e m impac s o hese ax e o ms.
Ou esul s sugges ha his simula ed ca bon ax would ep esen , on a e age, 5% o household dispos-
able income, a ax bu den ha anges om abou 2% in Sweden o almos 9% in G eece. Gene ally, he
bu den is mo e p onounced in lowe -income coun ies, la gely due o he highe p opo ion o income hese
households alloca e o expendi u es compa ed o hei weal hie coun e pa s. This eg essi e pa e n is
also e iden wi hin coun ies, whe e he ax bu den disp opo iona ely a ec s lowe -income households.
On a e age, he ax would ep esen 7.7% o disposable income in he poo es income quin ile, mo e han
double he 3.6% ax bu den aced by he iches quin ile. This pa e n leads o a nega i e dis ibu ional
e ec wi hin all 27 EU coun ies, wi h no excep ions. This is pa icula ly p onounced unde he la ax
scena io (wi h no allowances, a e di e en ia ion no compensa o y measu es), wi h he Gini coe icien
inc easing by up o 0.02 poin s in some coun ies.8
This la ca bon ax o EUR 80 pe CO2e could gene a e up o EUR 208 billion annually o he EU, mo e
han double he p ojec ed budge o he Social Clima e Fund. Al hough he inc ease in inequali y d i en
by he simula ed ax can be ully e e sed h ough e enue-neu al cash ans e s —whe he designed
a he na ional o EU le el— he p ac ical easibili y o such ans e s emains a signi ican challenge.
Impo an ly, ou indings also show ha , e en wi hou e enue- ecycling cash ans e s, he inequali y
e ec s can be pa ially mi iga ed h ough al e na i e, mo e p og essi e ax designs, such as implemen ing
ax allowances o a ying ax a es ac oss di e en p oduc s.
The es o he pape is o ganized as ollows. In he nex sec ion, we b ie ly p esen he EU-le el GHG
emissions educ ion a ge s and desc ibe he cu en ca bon p icing ini ia i es o unde s and whe e we
s and in he baseline. In Sec ion 3, we p esen he me hodology and da a, while in Sec ion 4, we p esen
he esul s om ou analysis. In Sec ion 5, we discuss he scope o ou esul s in ligh o he assump ions
7EXIOBASE da a is publicly a ailable a hei websi e (h ps://www.exiobase.eu/), and documen ed by
S adle e al. (2018), Tukke e al. (2013), Wood e al. (2014).
8Fo con ex , his igu e can be compa ed o he a e age edis ibu i e e ec o consump ion axes in he EU,
and i is ou imes g ea e han he edis ibu i e e ec o cu en ene gy axes (Amo es e al.,2023c).
3
we make, as well as he ela i e ad an ages and disad an ages o each o hese simula ed scena ios. A
he end, Sec ion 6concludes.
2 GHG a ge s and ca bon p ices in he EU
The policy ele ance o he es ima ed budge a y and dis ibu ional consequences o ca bon axes depends
on he easibili y o ou simula ed scena ios. The pa ame e s ha we use (e.g., he ca bon p ice ha we
impose on each CO2e, as well as he h esholds ha we use o ax allowances) ha e o be consis en
wi h he cu en con ex and, in pa icula , wi h he ca bon p icing p ac ices and EU’s clima e policy
agenda. The e o e, be o e in oducing he da a and me hodological s a egy in Sec ion 3, we p o ide
he e a b ie o e iew o he main in e na ional and EU-le el clima e a ge s ela ed o GHG emissions
educ ion, as well as he sha es o GHG ha a e cu en ly co e ed by some ca bon p icing.
GHG a ge s
The “Pa is Ag eemen ”, signed in he 2015 Pa is Con e ence o he Pa ies (COP) 21 o he UNFCCC,
was he i s -e e in e na ionally binding ag eemen . I es ablished a long- e m goal o limi he inc ease
in global a e age empe a u e o well below 2°C abo e p e-indus ial le els by he end o his cen u y
and o pu sue e o s o limi his inc ease o 1.5°C (UNFCCC,2015).
Since hen, clima e policy agendas ha e conside ed and pushed o wa d se e al in e media e a ge s
ela ed o GHG emissions educ ion. Acco ding o he Uni ed Na ions’ In e go e nmen al Panel on
Clima e Change (IPCC), o each he 1.5°C goal, GHG emissions mus peak be o e 2025 a he la es
and decline by 43% by 2030 (wi h espec o he 1990s). O he s udies ha e es ima ed he “sus ainable
le els” o consump ion compa ible wi h hese a ge s. Fo example, Go e (2021) and I ano a e al. (2016)
sugges ha pe capi a GHG emissions should be a ound 2.2 CO2e o be consis en wi h his 1.5°C goal,
simila o he 1.9 CO2e es ima e o Chancel (2022).
In his con ex , he EU has commi ed o becoming he i s ca bon-neu al economy (i.e., ze o ne GHG
emissions) by 2050. To achie e his, i has se an ambi ious clima e agenda unde he oad-map o he
G een Deal, launched in 2021, wi h speci ic a ge s owa ds 2030 (55% ne GHG emissions educ ion wi h
espec o 1990) and -mo e ecen ly- also so o 2040 (90% educ ion).9To be consis en wi h ca bon-
neu ali y and he new 2040 a ge s, in-house es ima es om he Eu opean Commission sugges ha pe
capi a GHG emissions ha e o be educed o abou 1.7 in 2040, s a ing om 4.9 in 2025.10
GHG emissions co e ed by ca bon p icing
The Wo ld Bank p o ides a publicly accessible dashboa d documen ing he ype o ca bon p ice ini ia i es
implemen ed wo ldwide and he sha e o GHG emissions hey co e . Acco ding o Wo ld Bank (2023),
e e ing o da a om 2023, abou 23% o global GHG a e co e ed by some o m o ca bon p icing:
18% by ETS, and 5% by ca bon axes. The ca bon p ice pe CO2di e s widely be ween coun ies and
ca bon p ice ins umen s, om US$0.46 o 167. In his con ex , he EU has one o he la ges GHG
co e age (abou 45%, mos ly co e ed by he EU ETS). Mo eo e , a ew Eu opean coun ies (especially
some Scandina ian coun ies) ha e among he highes ca bon p ices in he o m o speci ic ca bon axes.
9Mo e in o ma ion: h ps://clima e.ec.eu opa.eu/eu-ac ion/clima e-s a egies- a ge s/
2050-long- e m-s a egy_en.
10These alues we e ob ained om he JRC-GEM-E3 modelling ha in o med he impac assessmen unde lying
he Eu opean Commission’s p oposal o a 2040 clima e a ge (Eu opean Commission,2024).
4
∆Zg=Zag −Zbg (6)
To es ima e he expendi u es a e he ax unde compensa ing a ia ion (Zag, equa ion 7), we sub ac
om baseline expendi u es (Zbg) o al simula ed ca bon axes. These axes a e ob ained by mul iplying
he ax a e (τ, de ined in EUR pe on) by he household ca bon oo p in (F PGHGg). In ha s age is
whe e we assume a ull pass- h ough (inelas ic demand), as he quan i ies consumed ( ha en e he ax
base, h ough he ca bon oo p in s) a e ixed in he baseline.
Zag =Zbg +τFPGHGg(7)
A he end, AY d
gis ob ained by sub ac ing hese simula ed ax liabili ies om om baseline equi alised
household disposable incomes.
AY d
g=Yd
g−∆Zg=Yd
g−FPGHGgτ(8)
To assess he dis ibu ional e ec s unde his compensa ing a ia ion wel a e app oach we hen compa e
his a e - ax income and he dis ibu ion o he ax wi h baseline disposable income wi h wo s anda d
indica o s: he Gini coe icien -based on he concen a ion index- and he S8020 a io - he di e ence
be ween he income sha es o he op and bo om 20%.
Al hough his se es o p o ide a wel a e magni ude o he e ec in he sho un, he main mo i a ion o
he implemen a ion o ca bon axes is o educe demand, especially o ca bon-in ensi e goods and se ices.
Since we do no model i in his pape (see Sec ion 5), ou ‘o e nigh ’ esul s should be in e p e ed as
sho - un e ec s and p obably uppe bounds o he o e all e ec (as he nega i e demand esponse
should ac ually educe bo h he ax bu den on households as well as he e enues om ax collec ion).
Ne e heless, he li e a u e sugges s ha demand esponses o changes in p ices o necessi y goods (i.e.,
ood and ene gy, which a e p ecisely among he mos ca bon in ensi e) end o be small, especially in
he sho - un (Linden e al.,2024;Labandei a e al.,2017).
4 Resul s
In his sec ion, we p esen he main esul s o ou s udy. We s a , in sub-sec ion 4.1, wi h a b ie
desc ip i e analysis o he dis ibu ion o ca bon oo p in s ac oss households and coun ies. Then, in
sub-sec ion 4.2, we p esen he esul s om he simula ion o al e na i e ca bon ax designs.
4.1 Ca bon oo p in s - EU households
Figu e 1shows he dis ibu ion o pe capi a GHG oo p in s ( CO2e pe yea ) ac oss income and expen-
di u e quin iles. These quin iles a e based on each coun y’s dis ibu ion, wi h he EU a e age calcula ed
as a weigh ed popula ion a e age.
As illus a ed in Figu e 1, indi iduals in high-income households (wi hin coun ies) ha e much la ge
ca bon oo p in s han hose in low-income households. On a e age, ou es ima es o 2019 sugges ha
he a e age GHG embedded in he consump ion o he op 20% ( i h quin ile, Q5) is sligh ly abo e 8
CO2e, doubling ha o he bo om 20% ( i s quin ile, Q1). The Q5/Q1 gap is e en la ge -almos i e
11
imes- when indi iduals a e anked by hei equi alised expendi u es (expendi u es quin iles, igh -hand
side).
Th ee consump ion ca ego ies - esiden ial ene gy, anspo , and ood- a e esponsible o mos o he
GHG emissions. The p edominance o hese ca ego ies is well-documen ed in he li e a u e. No coinci-
den ally, he ETS2 co e s he i s wo g oups. This can be explained by he high le el o expendi u e
on hese consump ion ca ego ies and hei high GHG in ensi y. Figu es B.1 and B.2 highligh he la ge
he e ogenei y ac oss coun ies in expendi u es and GHG emission in ensi ies by ype o consump ion ca e-
go y. While his pa e n holds ue ac oss all income and consump ion quin iles, emissions om ood and
ene gy emain ela i ely cons an , whe eas GHG emissions om anspo subs an ially inc ease among
high-income and high-consump ion households.
Figu e 1: Pe capi a GHG emissions ac oss income and expendi u e quin iles (EU a e age, 2019)
No e: GHG oo p in s ( CO2e) based on en i onmen al ex ensions om EXIOBASE (2019), EU HBS 2015 and
SILC 2015 and EUROMOD ax-bene i ules o 2019. EU a e age: popula ion weigh ed. Consump ion
ca ego ies a he mos agg ega e le el (COICOP wo digi s) - o illus a i e pu poses, we g oup heal h wi h
educa ion (COICOP 06 and 10), communica ion wi h ec ea ion and cul u e (COICOP 08 and 09), housing wi h
u nishings, household equipmen and ou ine main enance o he house (COICOP 04 and 05), excluding ene gy.
To be e isualize he c oss-coun y dispe sion o hese pe capi a emissions ac oss he income dis ibu-
ion, Figu e 2p esen s a map wi h pe capi a GHG emissions a he bo om (Q1) and a he op o he
income dis ibu ion (Q5). The same in o ma ion pe coun y and ype o good is p o ided in Figu e B.3
in he Appendix B. A he bo om o he dis ibu ion (le panel o Figu e 2), some Eas e n Coun ies
and Spain exhibi e y low emissions (less han 3 onnes pe capi a). In con as , some Wes e n cen al
12
coun ies (Ge many, he Ne he lands, Luxembou g, Aus ia) and I eland ha e mo e han 8 ones pe
capi a CO2e o GHG emissions. As expec ed, in quin ile 5 ( igh panel o Figu e 2), pe capi a GHG
emissions a e much highe , wi h abou hal o he coun ies showing mo e han 10 onnes pe capi a
emissions. He e we can also app ecia e ha he c oss-coun y dispe sion o he ca bon oo p in s o he
op 20% income g oups is highe han he one o he bo om 20%.
Figu e 2: Pe capi a GHG emissions in quin ile 1 (Q1) and quin ile 5 (Q5), 2019
Q1 Q5
(13,17]
(10,13]
(8,10]
(5,8]
(3,5]
[0,3]
No e: GHG oo p in s ( CO2e) based on en i onmen al ex ensions om EXIOBASE (2019), EU HBS 2015 and
SILC 2015 and EUROMOD ax-bene i ules o 2019.
O e all, we can see ha mos o he i s quin iles ac oss he EU coun ies ha e, on a e age, ca bon
oo p in s ha a e abo e “sus ainable le els” (o 2-2.5 ons a yea ). In ac , only i we ank households
om he poo es o he iches (in e ms o incomes) in he EU and look a he i s decile ( he 10% wi h
he lowes incomes, ega dless o he coun y o esidence) We obse e a ca bon oo p in ha is aligned
wi h his h eshold.
Consump ion axes a e gene ally eg essi e (Maie and Ricci,2024,Decos e e al.,2010). Thei o e all
edis ibu i e e ec depends on wo main ea u es: he a e age ax a e o ax bu den, and how hese ax
liabili ies a e dis ibu ed ac oss income g oups, see, e.g., Kakwani (1977) and Reynolds and Smolensky
(1977). We now explo e he second dimension (dis ibu ion o GHG emissions ac oss income) using
concen a ion indices, as his can help us in e p e he esul s om he simula ion and p o ide inpu s o
he design o a p og essi e ca bon ax (scena io 3).
Figu e 3p esen s he dis ibu ion o concen a ion indices -see equa ion 3- ac oss coun ies and agg ega e
consump ion ca ego ies. These a e anked om le o igh by he median concen a ion index o he
13
27 EU coun ies. GHG emissions om ood, ene gy, alcohol and obacco show he lowes concen a ion
indices, sugges ing ha hey a e mo e equally dis ibu ed ac oss income g oups han he es o he
consump ion ca ego ies. Con e sely, anspo , o he , clo hing and oo wea , communica ion, ec ea ion
and cul u e, es au an s, and ho els a e mos ly concen a ed a he op o he dis ibu ion.
These esul s eed he design o ou hi d ax scena io, whe e we look a imp o ing he p og essi i y o
he ca bon ax by imposing di e en a es ac oss consump ion ca ego ies. To make ca bon axa ion mo e
p og essi e wi h his s a egy, ax a es should be highe among hose p oduc s wi h highe concen a ion
indices (GHG emissions s incomes). S ill, he imp o emen o he o e all dis ibu ional e ec (i.e., o
minimize he inequali y-inc easing e ec s) depends also on whe he hose p oduc s wi h highe ax a es
ep esen la ge sha es o he o al ca bon oo p in s. Fo ins ance, in mos o he coun ies, we could expec
an imp o emen in he dis ibu ional esul s d i en by anspo , which has bo h a high concen a ion
index (and as such, i will be axed a highe a es in ou simula ions) while i also ep esen s a la ge
sha e o he ax bu den.
Figu e 3: Concen a ion index: GHG emissions by consump ion ca ego y (EU 27 coun ies, 2019)
No e: GHG oo p in s (eq-CO2) based on da a om EXIOBASE (2019), HBS 2015 and EU-SILC 2015, wi h
alues up a ed and ax-bene i ules o 2019 applied wi h EUROMOD. Concen a ion index o equi alised GHG
emissions wi h espec o equi alised household disposable income. The line wi hin he boxes indica es he
median ac oss he 27 EU Coun ies. The boxes ep esen he ange o he pe cen iles 25 and 75 (in e -qua ile
ange).
14
4.2 Simula ion esul s
We now p esen he esul s om ou simula ions. We s a wi h he esul s om scena io 1, whe e we
impose a la CO2 ax on consump ion, and discuss he o e nigh budge a y and edis ibu i e e ec s
bo h wi hou and wi h e enue- ecycling compensa o y measu es. Nex , we mo e o scena ios 2 (g een
allowances) and 3 (di e en ax a es by p oduc s), whe e we y o make he ca bon ax less eg essi e
by design (wi hou compensa o y measu es).
Be o e p esen ing he dis ibu ional e ec s o ou simula ed scena ios, Table 3p o ides an upda ed e sion
o Table 2, wi h an o e iew o he es ima ed budge a y e ec s (agg ega e ax e enues). Addi ionally,
i p o ides he implici ca bon ax o hose scena ios whe e his a iable is endogenously de e mined
(scena ios 2.2 and 3.1).
Table 3: Simula ed scena ios: p ice and budge
Scena io Name Desc ip ion Ca bon p ice Budge *
(EUR/ CO2e) (EUR bn)
S1 Fla Tax on GHG emissions
S1.1 Fla 80 No compensa ion 80 208
S1.2 . . . + cn compensa ion Coun y speci ic compensa ion 80 0
S1.3 . . . + EU compensa ion EU compensa ion 80 0
S2 G een allowances Tax on GHG emissions wi h allowances
S2.1 GA 2.2 Exemp ed 2.2 CO2e 80 135
S2.2 GA 2.2 - FB Exemp ed 2.2 CO2e (FB) 145** 208
S3 Di e en GHG ax a es by p oduc
S3.1 P og40 Th ee a es (40, 80, ph) 40-144** 208
No e: FB = ixed budge - equi alen o scena io 1.1. *Budge e ec o he whole EU27. De ailed esul s by
coun y a e epo ed in Table 4 o scena io 1, and in he Appendix B o he es . EU simple a e age o he
ca bon ax (coun y-speci ic alues in Table B.5).
4.2.1 Resul s om scena io 1: hypo he ical 80 EUR CO2 la ax
Le us s a wi h he simula ed la ca bon ax o EUR 80 (pe CO2e) o he 27 EU coun ies. In
he ho izon al axis o Figu e 4, we plo he a e age ax a e, o “ ax bu den” (i.e., o al ax liabili ies
exp essed as a sha e o disposable income). In he e ical axis we plo he edis ibu i e e ec , measu ed
as he change in he Gini coe icien be o e and a e he simula ed ca bon ax.
The ax bu den anges om abou 2% o household disposable income in Sweden (SE), F ance (FR) and
Denma k (DK) o 9% in Hunga y (HU), G eece (EL) and Poland (PL). In gene al, we obse e a la ge
ax bu den in lowe -income coun ies compa ed o highe -income ones. While, in ac , highe income
coun ies consume mo e and ha e la ge pe capi a ca bon oo p in s, (and as such, hey end-up paying
mo e in absolu e e ms), he ela i e weigh o he ca bon ax on incomes is smalle . This is p ima ily be-
cause o hei lowe income sha es o consump ion expendi u es. Addi ionally, di e ences in consump ion
pa e ns con ibu e o his a ia ion: lowe -income coun ies end o ha e a highe p opo ion o expen-
di u es alloca ed o GHG-in ensi e ca ego ies such as ood, hea ing, and anspo . These ca ego ies also
accoun o a g ea e sha e o o al GHG emissions in hese coun ies. As illus a ed in Figu es B.1 and
B.2 (Appendix B), ood, hea ing and anspo anges om abou one- hi d o household consump ion
15
expendi u es in Luxembou g, Ne he lands and Finland o almos wo- hi ds in Es onia, C oa ia and
Romania.
In he same igu e we can obse e ha he ax leads o nega i e edis ibu i e e ec s in all EU 27
coun ies. We measu e i as he change in he Gini coe icien o equi alised disposable income be o e and
a e he ax (by “a e ” we mean incomes ha would be needed o pu chase he baseline consump ion
baske wi h he new p ices/ axes, ollowing he compensa ing a ia ion wel a e app oach discussed a he
end o sec ion 3). A posi i e alue sugges s ha he Gini coe icien has inc eased a e he ax, which
means ha he a e - ax income dis ibu ion is mo e concen a ed han in he baseline (i.e., “inequali y
inc eases”). Al hough his inequali y-inc easing e ec is obse ed in all EU coun ies, i s magni ude
widely a ies om a ound 0.0025 Gini poin s in Sweden (in gene al in all Scandina ian coun ies, as well
as in F ance and Belgium) o 0.02 (in G eece). These esul s a e obus o he use o an al e na i e
indica o o measu e income concen a ion, such as he S8020 a io, as we show la e .
F om he well-known Kakwani decomposi ion (Reynolds and Smolensky,1977,Kakwani,1977), ha is
he di e ence in Gini coe icien be o e and a e a ax can be decomposed in o a p og essi i y e ec
(measu ed wi h he Kakwani index, cap u ing how he ax is dis ibu ed along p e- ax income), a size
e ec ( he a e age a e o ax bu den) and a e- anking e ec . In Figu e 4, we obse e a clea posi i e
c oss-coun y co ela ion be ween he ax bu den and he edis ibu i e e ec . This sugges s ha mos
o he c oss-coun y dispa i ies a e explained by he ela i e size o he ca bon ax wi h espec o
household incomes, a he han by di e ences in p og essi i y/ eg essi i y. Ne e heless, he ela ionship
is no pe ec ly linea .
We can see, o example, ha he e a e coun ies wi h e y simila a e age ax bu dens (e.g., Es onia and
Romania, whe e he ca bon ax would ep esen on a e age 7% o household disposable income) wi h qui e
di e en edis ibu i e e ec s (0.017 s 0.010, o Es onia and Romania, espec i ely). In hese cases, we
do obse e subs an ial di e ences in eg essi i y - he simula ed ca bon ax is mo e disp opo iona ely
a ec ing lowe -income households in Es onia han in Romania. As i can be app ecia ed in Figu e B.3
(Appendix B), pe capi a GHG emissions in quin ile 1 a e much highe in Es onia han in Romania.
16
Figu e 4: Dis ibu ional e ec and a e age ax a e o a hypo he ical 80 EUR la CO2 ax (S1.1)
No e: Simula ed esul s based on G een EUROMOD. A e age ax a e (o ax bu den) exp essed as % o
equi alised household disposable income. GHG oo p in s ( CO2e) based on en i onmen al ex ensions om
EXIOBASE (2019), HBS 2015, EU-SILC 2015 and EUROMOD ax-bene i ules o 2019.
An ad an age o he G een EUROMOD model is ha we can simula e no only household disposable
income (a e di ec axes and cash bene i s) bu also consump ion ax liabili ies (VAT and excises),
wi h a high le el o p ecision and c oss-coun y ha moniza ion. This allows us o compa e he ax
bu den and edis ibu i e e ec o ou simula ed ca bon ax wi h he one om consump ion axes.20
Ou es ima es sugges ha consump ion axes ep esen app oxima ely 13.5% o household disposable
income (in 2019, on he EU-27 a e age). This means ha ou hypo he ical ca bon ax would inc ease he
o e all consump ion ax bu den by abou one- hi d (35%). Unsu p isingly, his EU a e age also masks
subs an ial c oss-coun y he e ogenei y, as his sha e (ca bon ax o o al consump ion axes) anges om
16-19% in Sweden and Denma k o abou 70% in Poland (see Figu e B.5, Appendix B). Al hough i is
well ue ha some coun ies ha e highe consump ion ax a es in he baseline -wha ce e is pa ibus
makes he ela i e inc ease om ca bon axa ion smalle - di e ences he e a e again mainly d i en by he
he e ogenei y in he ax bu den o he simula ed ca bon ax. In e ms o he dis ibu ional ou comes,
he inequali y-inc easing e ec o he simula ed ca bon ax is abou one- hi d o he inequali y-inc easing
e ec o 2019 consump ion axes in he EU. Again, his a ies ac oss coun ies, om abou 13% in Sweden
and Denma k o mo e han 100% in Czechia and Poland (see Figu e B.5, in Appendix B).
We now explo e o wha ex en a compensa o y measu e such as a cash ans e o households ( ecycling
he ax e enues om his simula ed ax) can o se hese inequali y-inc easing e ec s. To do so we need
i s o es ima e he o al ax e enues. Acco ding o ou mic o-simula ions, his EUR 80 la ca bon
ax would inc ease go e nmen e enues by EUR 208 billion. Table 3 epo s he esul s o he EU
20Fo mo e in o ma ion on simula ed ca bon axes in EUROMOD, see, e.g., Maie and Ricci (2024).
17
agg ega es and Table 4by coun y.21 Fo con ex , he EUR 208 bn ep esen s mo e han wice he Social
Clima e Fund o 2026-2032 (EUR 87 bn).
Table 4: Resul s om a hypo he ical EUR 80 ca bon ax by coun y (scena io 1)
A e age ax bu den Budge a y e ec Redis ibu i e e ec (change in Gini)
cn % ( ax/yd) EUR bn %GDP S1.1 (no comp) S1.2 (cn comp) S1.3 (EU comp)
AT 3.79 6.29 1.6% 0.004 -0.006 -0.003
BE 3.56 6.63 1.4% 0.003 -0.005 -0.003
BG 5.71 1.48 2.4% 0.004 -0.017 -0.042
CY 3.70 0.38 1.6% 0.004 -0.008 -0.009
CZ 7.60 6.09 2.7% 0.013 -0.007 -0.004
DE 3.62 56.94 1.6% 0.007 -0.003 0.000
DK 2.40 3.19 1.0% 0.003 -0.003 -0.002
EE 6.95 0.85 3.0% 0.016 -0.006 0.000
EL 8.51 5.58 3.0% 0.020 -0.010 -0.007
ES 2.95 14.34 1.2% 0.005 -0.006 -0.011
FI 3.08 3.23 1.3% 0.003 -0.005 -0.003
FR 1.96 22.42 0.9% 0.002 -0.003 -0.005
HR 5.02 0.97 1.7% 0.006 -0.009 -0.024
HU 8.73 3.86 2.6% 0.010 -0.018 -0.023
IE 4.37 3.38 0.9% 0.009 -0.004 0.000
IT 3.82 29.64 1.6% 0.006 -0.006 -0.006
LT 5.28 0.97 2.0% 0.012 -0.007 -0.014
LU 3.52 0.43 0.7% 0.004 -0.005 -0.001
LV 5.58 0.92 3.0% 0.003 -0.016 -0.016
MT 4.86 0.11 0.8% 0.003 -0.003 -0.008
NL 3.36 10.55 1.3% 0.005 -0.004 -0.001
PL 8.44 16.76 3.1% 0.016 -0.010 -0.012
PT 4.09 3.36 1.6% 0.009 -0.006 -0.012
RO 6.93 3.97 1.8% 0.010 -0.017 -0.049
SE 1.74 3.35 0.7% 0.002 -0.002 -0.004
SI 4.23 0.88 1.8% 0.007 -0.004 -0.005
SK 4.42 1.31 1.4% 0.006 -0.005 -0.014
No e: Simula ed esul s based on G een EUROMOD. GHG oo p in s ( CO2e) based on en i onmen al
ex ensions om EXIOBASE (2019), HBS 2015, EU-SILC 2015 and EUROMOD ax-bene i ules o 2019. “bn”:
billions, “yd”: household disposable income. Change in Gini is calcula ed as he di e ence be ween he Gini
coe icien o equi alised household disposable income a e he ca bon ax (unde compensa ing a ia ion) and
he Gini coe icien o baseline equi alised household disposable income.
The absolu e size o he budge a y e ec depends on each coun y’s pe capi a GHG emissions and
popula ion size and a ies om below EUR 0.5 bn in small coun ies (Mal a, Cyp us, Luxembou g) o
EUR 57 bn in Ge many. On a e age, i ep esen s abou 1.74% o GDP, a sha e ha a ies om 0.7%
(Sweden o Luxembou g) o a ound 3% (La ia, Poland, Es onia o G eece). When he compensa o y
measu e is gi en in a e enue-neu al way o all EU inhabi an s in he same magni ude (scena io 1.3),
he cash ans e amoun s o EUR 480 pe yea . In con as , when he cash ans e is gi en a he
Membe S a e le el (scena io 1.2), i a ies om EUR 200-250 in Bulga ia, Romania, C oa ia, Mal a and
Slo enia o close o EUR 700-800 in Aus ia, Ge many, I eland and Luxembou g.
21These budge a y es ima es a e, as well as ou dis ibu ional es ima es, ‘o e nigh ’ e ec s (i.e., do no conside
po en ial beha iou al esponses, no a he le el o consume demand no gene al equilib ium e ec s ela ed wi h
compe i i eness and changes in unc ional income). We u he discuss he implica ions o his assump ion in he
Discussion sec ion 5.
18
To wha ex en do hese compensa o y measu es o se he nega i e edis ibu i e consequences o he
ca bon la ax? The di e en edis ibu i e ou comes ac oss coun ies and scena ios a e plo ed in Figu e
5, whe e coun ies a e anked om le o igh acco ding o he inc ease in he Gini coe icien in scena io
1.1 (no compensa ion). The e, we can see ha he e ec is e e ed in all coun ies: while he ax is
inequali y-inc easing in all EU coun ies, inequali y is educed in all EU coun ies wi h compensa o y
measu es.22 These alues, oge he wi h he a e age ax bu den and budge a y e ec s pe coun y a e
also epo ed in Table 4.
Figu e 5: Dis ibu ional e ec : wi hou and wi h compensa o y measu es (scena io 1)
No e: Simula ed esul s based on G een EUROMOD. GHG oo p in s ( CO2e) based on en i onmen al
ex ensions om EXIOBASE (2019), HBS 2015, EU- SILC 2015 and EUROMOD ax-bene i ules o 2019.
Gene ally, in he budge -neu al scena ios wi h compensa o y measu es (1.2 and 1.3), coun ies in Cen al
and Eas e n Eu ope expe ience he s onges educ ions in inequali y. These coun ies end o ha e highe
le els o inequali y han Wes e n, No he n and Sou he n Eu opean coun ies. The e o e, scena io 1.1 no
only inc eases inequali y e e ywhe e bu also b oadens di e gences ac oss coun ies, whe eas scena ios 1.2
and 1.3 would no only lead o a educ ion in wi hin-coun ies inequali y bu also o smalle c oss-coun y
di e gences in his dimension.
In coun ies whe e he EU-le el ans e is much la ge han he na ional-le el one (i.e., in Bulga ia,
Romania, Slo akia and C oa ia), he posi i e edis ibu i e e ec s a e s onge in scena io 1.3 han in
1.2. Ex eme cases a e Bulga ia and Romania, whe e he edis ibu i e e ec in scena io 1.3 (o abou
0.04 Gini poin s) mo e han doubles ha in scena io 1.2 (o sligh ly less han 0.02). In con as , in
mos Wes e n/No he n high-income coun ies, he inequali y- educing e ec a e he EU-le el ans e
(scena io 1.3) is weake han wi h he na ional-le el ans e (1.2). This is clea ly he case in Ge many,
I eland, Aus ia and Luxembou g.
22The only excep ions a e I eland, Ge many and Es onia, ha in scena io 1.3 (EU-le el compensa o y ans e )
expe ience an inequali y-neu al e ec o he combined e o m ( ax + compensa o y measu e).
19
O e all, esul s om scena io 1 sugges ha an EU la ca bon ax can lead o posi i e edis ibu i e
e ec s only i accompanied by e enue- ecycling compensa o y measu es. We illus a e his wi h a lump-
sum ans e , which u ns ou o be enough o compensa e he inc ease in he pos - ax concen a ion
o income. While compensa o y measu es - ypically in he shape o e enue- ecycling cash ans e s o
households, such as hose we ha e simula ed- a e widely discussed in he li e a u e (e.g., Feind e al.,
2021;Vandyck e al.,2021), hey a e no au oma ic and can be challenging o implemen om he poin
o iew o hei public and poli ical suppo . Among o he limi a ions, i is di icul o de ine how long
hese ans e s would endu e, and how o phase hem ou , and e en mo e o iden i y eligibili y based
on po en ial winne s/lose s. Mo eo e , hey may also b ing undesi ed ebound e ec s (e.g., see Mu ay,
2013).
4.2.2 Resul s om scena ios 2: g een allowances
In wha comes nex , we u n ou a en ion o e alua ing he budge a y and dis ibu ional impac s o
al e na i e ax designs, speci ically scena ios 2 and 3 ou lined in Table 2.
We simula e hese o he scena ios as al e na i e app oaches o enhancing dis ibu ional ou comes om
his simula ed ca bon p icing ini ia i e wi hou he need o addi ional compensa o y cash ans e s.
This is achie ed by making he ca bon ax mo e p og essi e. Mo eo e , a p og essi e ax could, in ac ,
inc ease public suppo o his policy, as sugges ed by Klene e al. (2018).
We s a by compa ing scena ios wi h “g een allowances” (S2.1 and S2.2) wi h he la ax scena ios,
wi hou and wi h compensa ion (1), see Sec ion 3.2. I we keep he o iginal ca bon p ice o EUR 80,
unde he g een allowances (S2.1), o al ax e enues would be EUR 135 bn (see Table 3) ins ead o EUR
208 (S1). Al e na i ely, we simula e a budge -equi alen a ian (S2.2) whe e we endogenously calcula e
he new ca bon ax a e ha would be needed o collec he same ax e enues pe coun y as in he
la ax wi hou compensa ion (S1). This, o cou se, leads o a la ge ca bon p ice on all hose GHG
emissions ha a e gene a ed abo e he 2.2 CO2e pe yea h eshold (a p ice o EUR 145 pe CO2e, on
EU a e age), wi h wide c oss-coun y a iabili y, as epo ed in Table B.5.
In Figu e 6, we can see ha , in gene al, ac oss scena ios, he bo om 20% ( i s quin ile, based on
equi alised disposable income) in each o he 27 EU coun ies would ace a much la ge ax bu den han
hei iches coun e pa s ( op 20%, quin ile 5), sugges ing ha hese simula ed ax e o ms a e gene ally
eg essi e. The la ges gap be ween quin iles is obse ed in he la ax (scena io 1.1), whe e, on a e age,
he ax bu den o he i s quin ile is 7.7%, mo e han doubling ha o he i h ( iches ) quin ile (3.6%).
We also iden i y subs an ial c oss-coun y dispe sion o he a e age ax bu den in he la ax scena io,
which is pa icula ly p onounced a he bo om o he income dis ibu ion. Table B.6 epo s he coun y-
speci ic es ima es ( ax bu dens o quin iles 1 and 5 ac oss all simula ed scena ios). The simula ed ax
bu den o he bo om quin ile in scena io 1.1 anges om abou 2.5% in F ance and Sweden o almos
20% in G eece. By con as , he ax bu den in he i h quin ile anges om 1.5% o 6%.
20
his line, Böh inge e al. (2021) a gue ha adding a consump ion ax on all use o goods ha a e co e ed
by he ee allowances o he ETS is op imal om bo h a egional and global wel a e pe spec i e, in line
wi h p e ious s udies (Böh inge e al.,2017;Holland,2012;Eichne and Pe hig,2015).
In ou s udy, he simula ed ca bon axes come on op o he al eady exis ing ca bon p icing ini ia i es
embedded in ou baseline p ices. No e ha he o hcoming ETS2 on households does no o esee ee
allowances, so he e migh be some o e lapping. In any case, he ax designs assessed in his pape
could be ine uned o exclude p oduc s unde ETS2 o any o he p oduc . In his sense, an in e es ing
complemen o ou s udy would be o u he e ine he ax design scena ios o make hem mo e com-
pa ible (complemen a y) o o he ca bon p icing ini ia i es by, o example, conside ing only hose GHG
emissions exemp ed om ETS and ETS2.
Ano he impo an conside a ion ega ding he easibili y o ou scena ios is ha a la ca bon ax im-
plemen ed a he EU le el, wi hou adjus men s o di e ences in pu chasing powe o income, would,
ce e is pa ibus, disp opo iona ely a ec low-income households wi hin coun ies and e en mo e so hose
in low-income coun ies. Such hypo he ical ax could be accompanied by compensa o y measu es o
adjus men s based on each coun y’s pu chasing powe . No e ha ene gy p oduc s a e among he mos
ca bon-in ensi e, and while all coun ies ace he same in e na ional ene gy p ices, hei pu chasing powe
a ies. This dispa i y leads o signi ican di e ences in he ene gy bill bu den ac oss coun ies, e en a
simila e iciency le els. Implemen ing a la ca bon ax ac oss coun ies would u he widen his gap. In
his sense, we ha e shown ha low-income households in low-income coun ies would be hose bene i ing
he mos om he EU-le el e enue-neu al compensa o y cash ans e (S1.3). And mo e in gene al, bo h
compensa o y measu es (S1.2 and S1.3) would e e he inequali y-inc easing e ec wi hin coun ies.
Imp o ing he dis ibu ional ou comes o he ax a e undamen al o jus i y i s jus ansi ion objec i es,
as using ca bon axa ion wi h he only pu pose o aising unds su e om li le suppo (Valencia e al.,
2023).27 In his sense, a la ca bon ax wi h e enue-neu al compensa o y cash ans e s o households
(S1.2 and S1.3) could be p omising, as i is no e enue-inc easing and leads o he bes dis ibu ional
ou comes. Howe e , hese ha e a leas h ee impo an limi a ions: i) hey depend on wo di e en
policies ( he ax and he ans e ), which could challenge hei accoun abili y and wi h i hei public
suppo , ii) hey a e di icul o implemen (phase-ou s a egy, eligibili y o bene icia ies, e c.), iii) hey
do no ake in o accoun changes in consump ion pa e ns no ebound e ec s, which oge he wi h
po en ial s a egic beha iou s by households can limi hei e icacy.28
As e enue-neu al compensa o y measu es a e no e y easible in he cu en policy con ex , we may
wan o explo e u he he ad an ages and disad an ages o he o he simula ed scena ios, whe e we y
o make he ca bon ax mo e p og essi e (o less eg essi e) by design. The di e en ca bon ax a es
ac oss agg ega e consump ion ca ego ies (scena io 3) a e, in p inciple, also ela i ely easy o implemen ,
as hey mimic wha consump ion axes do (e.g., by applying educed VAT a es o i s -necessi y goods
27In hei li e a u e e iew co e ing 35 s udies and 70 su eys sugges s ha g eene spending has highe public
suppo han aising axes o he only pu pose o aising public unds, while e idence is mixed on he suppo
o cash ans e s, wi h wide c oss-coun y a ia ion. Along his line, a ecen s udy o Ge many (Somme e al.,
2022) sugges s ha g een spending also inc eases public suppo o ca bon p icing, bu o he case o cash
ans e s, un a ge ed measu es a e mo e p e e ed han a ge ed ones. An in e es ing discussion on a ge ed s
un a ge ed p ice- ela ed measu es as well as income suppo measu e ela ed o he ecen hike in ene gy p ices,
including he case o Ge many, can be ound in Amo es e al. (2023b) and Amo es e al. (2023a).
28A way o deal wi h he la e , and encou age g eene demand habi s o he addi ional incomes ecei ed as
compensa ion would be o es ic i s use o he pu chasing o g eene p oduc s and/o o in es in g eening he
capi al s ock, such as in house insula ion, e c.
27
o highe a es o heal h-de imen al consump ion ca ego ies). Howe e , we ha e shown ha he gain
in p og essi i y ob ained om applying di e en ca bon axes o consump ion ca ego ies (e.g., by axing
anspo a a highe le el han ood o hea ing) is limi ed and in ol es he es ablishmen o a bi a y
h esholds.29 In his sense, he ca bon ax wi h g een allowances (S2.1 and S2.2), whe e he i s 2.2
CO2e a e ax exemp ed) seem mo e a ac i e. O e all, al hough hese ax exemp ions a e no p og es-
si e enough o p e en an inc ease in inequali y, hey o se a la ge pa o he nega i e edis ibu i e
consequences o he la ca bon ax.
The main d awback o hese ax-exemp ed ins umen s is hei challenging p ac ical implemen a ion,
equi ing CO2 oo p in labeling o all consump ion i ems and a ouche sys em o households o
pu chase p oduc s accoun ing o hei i s 2.2 CO2e wi hou he ca bon ax, simila o ee allowances
in he EU ETS. This sys em could be ope a ionalized h ough a cen alized p ocess whe e he e aile
egis e s pu chases agains consume s’ ID, mimicking he VAT collec ion sys em ac oss he supply alue
chain. Howe e , beyond he echnical challenge ha could be sol ed wi h blockchain echnology, his
poses p i acy conce ns as he cen al sys em would ack pu chases and iden i y equen ed e aile s.
An al e na i e based on an anonymous ouche also has disad an ages, as i migh be p one o he loss
o he ouche s o e en a black ma ke o ee ca bon allowances. The e o e, a echnological solu ion
ha combines p i acy wi h non ans e able allowances could be en isaged, a leas heo e ically. Finally,
he e could also be po en ial conce ns ela ed o c oss-bo de aud (in case o a la ax adjus ed by he
pu chasing powe o coun ies o a oid dis o ions o he single ma ke ).
6 Concluding ema ks
In his s udy, we assess he dis ibu ional consequences o a ious hypo he ical ca bon axes on household
consump ion ac oss he 27 EU coun ies. This is especially ele an in he cu en economic and poli ical
landscape in Eu ope, whe e os e ing "g eene " consume habi s and ensu ing he public accep abili y o
such measu es a e c ucial o a jus ansi ion.
To simula e hese al e na i e ca bon ax designs, we ex end he EU ax-bene i mic o-simula ion model
EUROMOD, wi h in o ma ion on GHG emission in ensi ies a a e y de ailed p oduc le el om an
en i onmen ally ex ended inpu -ou pu model (EXIOBASE). Wi h his “G een EUROMOD” ex ension,
we es ima e household-le el ca bon oo p in s, including emissions om bo h domes ic p oduc ion and
impo s, as well as ade and anspo se ices. This is wha allows us o simula e ca bon axes o he
EU27 coun ies wi hin a consis en and ha monized empi ical amewo k, based on EU-SILC incomes.
As such, ou dis ibu ional analysis uses he same income concep as Eu os a o he EU-le el o icial
measu emen o income po e y and inequali y.
Ou es ima es sugges ha pe capi a GHG emissions in he EU a e s ill well abo e he “sus ainable
le els” o abou 2/2.5 ons o CO2e a yea ) consis en wi h he in e na ional (Pa is) ag eemen s (see, e.g.,
Chancel e al.,2022;Go e,2021; and I ano a e al.,2016). These emissions a y widely ac oss coun ies
and income g oups. Pe capi a GHG emissions o he lowes income quin iles o he 27 EU coun ies
(bo om 20%) a e age sligh ly abo e 4 CO2e, while he iches quin ile a e ages o e 8 CO2e. In ac ,
only he poo es (in e ms o incomes) 10% o all indi iduals in he EU (pooled oge he , ega dless o
29The design wi h di e en ax a es ac oss p oduc s (S3.1) could be enhanced h ough a be e iden i ica ion
o he goods o ax a a lowe o highe a e, depending on hei sha e o emissions and he impac on inequali y.
This can be obse ed in igu es B.6,B.8 and B.7, whe e we show ( o he subca ego ies o ood, anspo and
ene gy, o each coun y) how he impac o a EUR 80 la ax on e e y single good would a ec inequali y and
he ela ed sha e o emissions.
28
hei coun y o esidence) ha e consump ion pa e ns ha a e compa ible wi h he 2/2.5-sus ainable
h eshold.
The esul s om ou mic osimula ions sugges ha a la ca bon ax on household consump ion (EUR 80
pe CO2e) would be inequali y-inc easing in all 27 EU Membe S a es, wi hou excep ion. This nega i e
edis ibu i e e ec comes om he eg essi i y o he ax when i is assessed agains he dis ibu ion o
household disposable incomes. This eg essi i y a ises because lowe -income households, which alloca e
a la ge po ion o hei income o consump ion a he han sa ings, bea a hea ie ax bu den. This
aligns wi h he indings o Linden e al. (2024) and mi o s he eg essi e na u e o consump ion axes
ela i e o disposable income (Maie and Ricci,2024;Decos e e al.,2010). The ax’s eg essi i y is
u he exace ba ed by di e ences in consump ion pa e ns, wi h low-income households spending mo e
(highe income sha es) on GHG-in ensi e ca ego ies like ood and esiden ial ene gy.
The dis ibu ional e ec la gely a ies ac oss EU Membe S a es. Coun ies ha would expe ience he
s onges inequali y-inc easing e ec s a e mos ly Cen al and Eas e n Eu opean coun ies. This c oss-
coun y dispe sion is p ima ily explained by he di e ences in he ax bu den. While he simula ed
consump ion-based ca bon ax would ep esen almos 9% o disposable income in Hunga y, Poland
and G eece, i is only 2% in Sweden and F ance. Di e ences in he ax bu den a e mainly d i en by
he dec easing g adien o income sha es o household consump ion expendi u es ac oss coun ies’ pe
capi a income, he same ha d i es he eg essi i y wi hin coun ies. Again he e, he e a e di e ences
in consump ion p o iles ein o cing his pa e n: he expendi u e sha es o highly pollu ing goods (such
as hea ing, ood and anspo ) end also o be la ge in lowe -income coun ies (and households).
This la ca bon ax o EUR 80 pe CO2e could gene a e up o EUR 208 billion annually o he EU,
mo e han double he p ojec ed budge o he Social Clima e Fund. Ou esul s sugges ha i hese
e enues we e used o compensa e households wi h a lump-sum cash ans e , he inc ease in inequali y
would be ully e e ed. Howe e , he p ac ical and poli ical easibili y o hese cash ans e s is somehow
limi ed. This is why we explo e ways o making he ca bon ax less eg essi e and, wi h i , imp o ing
he dis ibu ional ou comes wi hou elying on such compensa o y measu es. In his sense, we show ha
p og essi e ax s uc u es, wi h ax allowances and (al hough o a lesse ex en ) di e en ia ing ax a es
ac oss p oduc s (like VAT), pe o m ela i ely well in p e en ing la ge inequali y-inc easing e ec s and, a
he same ime, boos ing go e nmen e enues. These a e also qui e a ac i e since hey do no depend
on a complemen a y policy (such as he cash ans e ), which could make hei implemen a ion mo e
challenging, and hampe hei public accep abili y. These esul s unde sco e he po en ial o ca bon
axes o se e as e ec i e ools o bo h en i onmen al and iscal policy, p o ided hey a e ca e ully
designed o add ess equi y conce ns.
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33
A Appendix A: da a and impu a ions
A.1 App oaches on he implemen a ion o he Pollu e Pays P inciple
Figu e A.1: P oduce Based App oach s Consume Based App oach
Sou ce: Own elabo a ion.
A.2 Impu a ion o HBS consump ion expendi u es in o SILC
This subsec ion desc ibes he impu a ion me hod used o impu e households consump ion expendi u es
epo ed in HBS o SILC’s su eyed households. Since he households in e iewed in hese wo su eys
a e no he same, me ging in o ma ion om one o ano he equi es an impu a ion me hod.30
To iden i y simila households ac oss su eys, we adop he semi-pa ame ic p ocedu e de eloped by
Akoğuz e al. (2020), which combines he es ima ion o Engel cu es (see, o ins ance, Decos e e al.,
2010) wi h ma ching echniques. Below we p o ide a b ie s ep-by-s ep desc ip ion o his p ocedu e.
1. Calcula e he sou ce income sha es: Fo each household h’s in he sou ce da ase , s(HBS),
he expendi u e on a good i,es
hp, is con e ed in o a sha e o disposable income, ys
h:
ws
hp=es
hp
ys
h
, p ∈P(9)
30In gene al, we use HBS 2015, wi h a ew excep ions. One is Ge many, because a consis en da ase was no
a ailable a he ime o calcula ion. Ano he is I aly, whe e he p ocess is u he complica ed due o he absence
o ne household income da a in he HBS su eys. To add ess his, we i s impu e income da a o HBS using a
hi d su ey, he 2010 Su ey on Household Income and Weal h (SHIW), be o e me ging HBS wi h SILC. Finally,
ano he excep ion is Aus ia, which is based on p op ie a y na ional da a om 2010. Fo mo e de ails, see Akoğuz
e al. (2020).
34
These sha es a e calcula ed o he Pgoods a ailable in he HBS (a ound 200 o mos coun ies).
2. Agg ega e he sou ce income sha es: These income sha es a e agg ega ed unde b oade
ca ego ies, indexed by X=A, B, .... Thus, he income sha e o expendi u e ca ego y X, Ws
hX:
Ws
hX≡X
p∈PX
ws
hp(10)
3. Reg ession analysis: Sou ce income sha es Ws
hXa e eg essed agains a se o co a ia es
common o bo h he HBS (sou ce, s) and SILC ( ecipien , ) da ase s. This eg ession d aws on
he speci ica ion o Engel cu es.31
Since agg ega ed ca ego ies Xmay s ill ha e ze o expendi u es, a wo-s ep eg ession is
pe o med:
(a) P obi model: The p obabili y o posi i e expendi u e on ca ego y Xis modelled using a
p obi model:
P Ws
hX>0= 1 −ϕ−γ
′
Xxs
h=ϕ−γ
′
Xxs
h(11)
whe e ϕ(·)is he s anda d no mal dis ibu ion unc ion, xs
hdeno es he ec o o co a ia es
o household hin he sou ce da ase s, and γ′
Xcon ains pa ame e s o be es ima ed.
(b) Reg ession model: Fo households wi h posi i e expendi u es, a con inuous eg ession
model is es ima ed:
Ws
hX=β
′
XXs
h+ϵhX, Ws
hX>0(12)
4. Fi ed Values o income sha es: The es ima ed pa ame e s bγand b
βa e used o gene a e
i ed alues o he income sha es o expendi u es on he agg ega ed ca ego ies X o all
households in bo h HBS and SILC:
Wd
hX=ϕ−bγ
′
Xxd
hb
β
′
XXd
h, d =s, (13)
whe e sand deno e espec i ely HBS and SILC.
5. Dis ance calcula ion: Using he ec o s o i ed sha es, c
Wd, calcula ed in he p e ious s ep,
he Mahalanobis dis ance be ween a household hin HBS, and a household gin SILC is de ined as:
dis (h, g) = dis W
g, Ws
h= c
W
g−c
Ws
h′
Σ−1c
W
g−c
Ws
h(14)
whe e Σis he co a iance ma ix o he ec o s c
Wd, using da a om bo h da ase s.
6. Ma ching households: The household hin HBS ha has he smalles dis ance o a household
gin he SILC is selec ed as he ma ch.
7. De ailed expendi u es: Fo each ma ch pai ed (h, g), he income sha es o expendi u es a he
mos de ailed le el o p oduc s p∈P o he EU-SILC household g, a e ob ained om he
co esponding alues o he HBS household h:
w
gp=ws
hp(15)
31The co a ia es include a hi d-deg ee polynomial in he log o incomes and de ailed household composi ion
cha ac e is ics, such as numbe o household membe s by gende , labou ma ke s a us, and age.
35
A.3 G een EUROMOD: b idging EXIOBASE o HBS
The s ep-by-s ep me hodology, coe icien s and alida ion esul s a e epo ed in Amo es e al. (2024).
He e we summa ize he main s eps and me hodological choices.
EXIOBASE ( 3.8 da abase) has en i onmen al ex ensions lis ed indi idually in 1707 ca ego ies. Mos
uses o hese ex ensions in ol e an agg ega ion o , e.g., di e en ma e ial quan i ies. Ca bon oo p in s
we e calcula ed as he amoun o he di e en GHG in kgCO2-equi alen s pe yea using he Global
Wa ming Po en ial 100 (GWP100), which equi alences a e CO2: 1, CH4: 28, N2O: 265, SF6: 23,500.
1. Di ec and indi ec in ensi ies: In his s ep, we es ima e di ec and indi ec in ensi ies
sepa a ely. The di ec emissions a e only ele an o bu nable uels in EXIOBASE. One poin o
con usion is he ea men o biomass, which is pa ly ea ed as an ag icul u al p oduc in he
EXIOBASE ene gy accoun s. The combus ion o biomass esul s in non-CO2ai emissions
(biomass is assumed ca bon neu al in he CO2accoun s in EXIOBASE). Household emissions
a e s o ed in a 3 dimensional ma ix in EXIOBASE (ex ension ×p oduc × inal demand
ca ego y). These in ensi ies e e o he GHG emissions o o he en i onmen al p essu es pe uni
o consump ion. No e, o al expendi u e is used, as hese emissions occu on he domes ic
e i o y, bu can esul om he pu chase o ei he domes ically p oduced o impo ed uels. Fo
indi ec emissions, GHG in ensi ies (emissions pe EUR) a e ob ained om an en i onmen ally
ex ended inpu -ou pu model buil o e EXIOBASE a basic p ices. All emission sou ces a e
alloca ed o di e en ypes o inal demand. Howe e , a he sec o and ansac ion le el,
signi ican noise may occu in he da a, as many small alues a e es ima ed wi h a e y low le el
o accu acy bu ha e an indisce nible impac on o al esul s.
2. GHG in ensi ies in o pu chase s’ p ices: They need o be ans o med in o pu chase s’
p ices. To do so, we use he ables o ade and anspo ma gins, and axes less subsidies on
p oduc s o eloca e he ade and anspo se ices and hei associa ed emissions o he inal
p oduc s consumed by households.
3. B idge ma ix: We build b idging ma ices o es ima e he GHG in ensi ies in COICOP om
he EXIOBASE esul s. We ollow a e y simila me hodology han I ano a and Wood (2020)
bu a a much mo e p oduc g anula i y (COICOP 5 digi s).
B idge ma ices a e usually cons uc ed o b idge be ween wo common obse a ions in wo
di e en classi ica ions. Fo he pu pose he e, he “obse a ion” is he expendi u e o households.
The expendi u e o households is a ailable in he EXIOBASE classi ica ion and is also a ailable
in he EUROMOD classi ica ion. Gi en he a ailabili y o expendi u e in bo h classi ica ions,
b idge ma ices can hen be es ima ed in alue e ms ha show he alue o p oduc s in one
classi ica ion in e ms o he o he classi ica ion a eh same ime.
While he mapping o EXIOBASE p oduc s o EUROMOD p oduc s could be done wi h a
manual app oxima e mapping based on expe choice, he use o “b idge ma ices” enhances he
accu acy o he accoun ing as balances a e kep : i) all emissions om he sou ce da a a e
ans e ed o he model p o ided ha b idges con e ged o he agg ega e da a du ing balancing,
ii) b idges a e calib a ed o e e y coun y and yea agg ega e da a, wha no expe could do
manually, and iii) he co espondence be ween classi ica ions is o en such ha many p oduc s o
EXIOBASE p oduc s co espond o many p oduc s in EUROMOD, so i is no only a ma e o
agg ega ion in o de o keep he balances men ioned abo e.
4. Reconcile he b idge: The p ocedu e o econcile he b idge o he EXIOBASE and
EUROMOD da a is based on he bi-p opo ional balancing echnique RAS commonly used in he
36
Figu e B.4: Dis ibu ional e ec : change in S8020 a io
Figu e B.5: Ca bon ax (S1.1) s consump ion axes: a e age ax a e and edis ibu i e e ec
43
Figu e B.6: Sha e o GHG emissions axed and impac on Gini coe icien : decomposi ion Food
Figu e B.7: Sha e o GHG emissions axed and impac on Gini coe icien : decomposi ion Ene gy
44
Figu e B.8: Sha e o GHG emissions axed and impac on Gini coe icien : decomposi ion T ans-
po
45
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