Climate Change Mitigation Policies: Aggregate and Distributional Effects

Abstract We evaluate the aggregate and distributional effects of climate change mitigation policies using a multi-sector equilibrium model with intersectoral input-output linkages and worker heterogeneity, calibrated to various countries. Carbon taxes induce changes in relative prices and input reallocation, notably in labor. In the United States, achieving its Paris Agreement commitment results in, at most, a 0.8% reduction in output, unevenly affecting different sectors and individuals. Some workers in dirty energy sectors, forming less than 2% of the labor force, endure welfare losses six times larger than others. China, reliant on high-carbon energy, experiences larger economic effects from an identical emission reduction.