Climate Policy and Income Inequality: Distributional Implications of Cap and Trade	System Design Choices in Ontario

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Abstract/Contents

Abstract: Climate change poses a challenge to Canadian policy-makers: how can Canada reduce its greenhouse gas emissions in a way that is cost effective but also equitable? In this paper, I explore the distributional impacts across income groups of cap and trade in Ontario, modeling the impacts of changes in commodity prices, changes in labour and capital returns, and program revenue use. In particular, I examine three different permit allocation methods and revenue recycling schemes: (1) 100% free allocation, (2) 100% auctioning of permits paired with a per capita fixed rebate, and (3) 25% free allocation, 75% auctioning with revenues used for public spending on transit, building retrofits, and clean technology subsidies. I find that the policy-induced commodity price increases put a greater burden on poorer households relative to their income. The decrease in returns to labour is progressive across quintiles, but likely not enough to counteract the regressive spending side impact. Overall, program revenue use maybe the deciding factor in whether Ontario’s cap and trade system is equitable across income groups.

Type of resource	text
Date created	May 2016

Author	Harrison, Sophie Hoberg
Primary advisor	Goulder, Lawrence
Degree granting institution	Stanford University, Department of Economics

Subject	Climate change
Subject	carbon pricing
Subject	Canada
Subject	Stanford Department of Economics
Genre	Thesis

Location	https://purl.stanford.edu/tc731yv0741

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Preferred Citation: Harrison, Sophie Hoberg. (2016). Climate Policy and Income Inequality: Distributional Implications of Cap and Trade System Design Choices in Ontario. Stanford Digital Repository. Available at: https://purl.stanford.edu/tc731yv0741

Stanford University, Department of Economics, Honors Theses

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