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 different countries. The introduction of carbon taxes leads to changes in relative prices and inputs reallocation, including labor. For the United States, reaching its Paris Agreement pledge would imply at most a 0.6% drop in output. This impact is distributed asymmetrically across sectors and individuals. Workers with a comparative advantage in dirty energy sectors who do not reallocate bear relatively more of the cost but constitute a small fraction of the labor force.