Carbon taxes, either implemented directly or through high fuel taxes, have long existed in European jurisdictions. If the European Union were to implement a comprehensive carbon tax across all member states, however, it would disproportionately raise the expenditure of the poorest 40% of European households, mainly from the poorest countries. Recycling revenues through compensation transfers can offset this disproportionate burden, using just 7% of the total carbon tax revenue. The net impact of this scheme would be neutral at the European level, and with equal-per-capita transfers, the carbon tax burden would become progressive.
This policy brief addresses the distributional effects of EU-wide CO2 taxes in the European Union. It aims to help policymakers develop measures that do not place additional burdens on socio-economically weaker groups that are already most affected by the consequences of climate change.