fbpx The Welfare Consequences of Taxing Carbon | Harvard Kennedy School


For EMF 32, we applied a new version of our Intertemporal General Equilibrium Model (IGEM) based on the North American Industry Classification System (NAICS). We simulated the impacts arising from the Energy Modeling Forum’s broad range of carbon taxes under three revenue recycling options — lump sum redistributions, capital tax reductions, and labor tax cuts. We examined their consequences for industry prices and quantities, for the overall economy, and for the welfare of households, individuals, and society, the latter in terms of efficiency and equity. We rank recycling mechanisms from most to least favorable in terms of the magnitudes of their impacts on net social welfare — efficiency net of equity — recognizing that other objectives may be more important to policy makers and the public. Finally, we and the EMF 32 effort focus only on the economic effects of carbon taxation and revenue recycling; the environmental benefits arising from emissions reductions are not within our scope of study.


Jorgenson, Dale W., Richard J. Goettle, Mun S. Ho, and Peter J. Wilcoxen. "The Welfare Consequences of Taxing Carbon." Climate Change Economy 9 (February 2018).