Distributional impacts of carbon pricing in developing Asia

Understanding who would be affected in which way by carbon pricing is pivotal for effective and socially equitable policy design, addressing climate change and reducing inequality. This paper focuses on eight key countries in developing Asia (Bangladesh, India, Indonesia, Pakistan, Philippines, Thailand, Turkey and Vietnam). By combining national household surveys with input–output data, we compare the distributional effects of four carbon pricing design options, including a globally harmonized carbon price, a national carbon price and sectoral carbon prices in the power and transport sectors, respectively. Our analysis reveals a substantial degree of variation regarding who would be affected across policy designs and countries. Looking into national carbon pricing as the most favourable policy option from an economic point of view, we find that differences in distributional outcomes are generally more pronounced within income groups than across income groups. These differences are mainly driven by households’ energy use patterns, which vary across countries. Equally recycling revenues back to all citizens would overcompensate the burden of a carbon price for the poorest households in all countries. Carbon pricing can alter income distribution. With a focus on Bangladesh, India, Indonesia, Pakistan, Philippines, Thailand, Turkey and Vietnam, this study compares four types of carbon pricing schemes and finds substantial variation in distributional effects across policy designs and countries.