Impacts of carbon pricing on income inequality in Brazil

Abstract

The introduction of a tax on greenhouse gases aims to increase awareness of the real costs of economic activities across all stakeholders. In the absence of such tax, these activities generate negative externalities, a market failure that imposes costs on others, including future generations. Developing countries have increasingly contributed to climate change, and emission mitigation policies are therefore also required in these economies. Among the priorities in their political agendas, however, are to reduce income concentration and alleviate poverty. Climate policies should therefore be implemented without interfering with such social goals. This study uses a Social Accounting Matrix for Brazil in 2005 to analyse the impact of implementing a charge per tonne of CO2e emitted on income distribution in Brazil. The results differ as much in relation to the level of the applied tax as to the means whereby the revenue thus raised is recycled in the economy. Two option paths are simulated: direct transfer to low-income families and exemption from labour taxes. As complementary results, impacts on GDP, on employment levels, and on GHG emissions are also analysed.