Distributional impacts of carbon pricing in low and middle-income countries

The climate targets agreed upon in the Paris Agreement will eventually need to be backed by ambitious climate policies. Putting a price on carbon and abolishing subsidies on fossil fuels is usually widely agreed upon by economists to be the economically efficient solution (High-Level Commission on Carbon Prices 2017). An increasing amount of countries, including low and middle-income economies (LMICs), have already introduced (or plan to do so) carbon pricing schemes. Yet, the introduction of carbon pricing schemes frequently triggers concerns regarding the distributional justice of climate policy. The question of distributional effects relates closely to the political feasibility of reforms. A regressive carbon price would not only be problematic from a perspective of equity and justice, but very likely also be deemed to fail politically.