World Energy Transitions Outlook 2022
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Carbon prices must be paired with fair revenue-distribution policies within and across countries
In order to reap their benefits, overcoming barriers to the transition, carbon prices must bring fair revenue-distribution policies within and across countries. When higher-income groups are shouldering the higher prices they are implicitly constraining the costs of compensating the poorest groups (Parry et al., 2018). Similarly, harmonised carbon prices are effective only when poor countries (and groups) are compensated financially for their mitigation costs (Jakob, 2021). Harmonised taxes can indeed be combined with compensation payments. Historically, though, these payments are hard to negotiate because countries (and individual firms) bear the social costs of their activities in wildly divergent ways (IPCC, n.d.; Kohn, 1992; Baumol and Oates, 1988; Mestelman, 1982). In any case, it is important that governments clearly communicate the goal of carbon pricing and of associated policies to the public.