LETTER • OPEN ACCESS An assessment of the potential of using carbon tax revenue to tackle poverty To cite this article: Shinichiro Fujimori et al 2020 Environ. Res. Lett. 15 114063 View the article online for updates and enhancements. This content was downloaded from IP address 170.106.202.226 on 29/09/2021 at 21:15 Environ. Res. Lett. 15 (2020) 114063 https://doi.org/10.1088/1748-9326/abb55d Environmental Research Letters LETTER An assessment of the potential of using carbon tax revenue to OPEN ACCESS tackle poverty RECEIVED 16 June 2020 Shinichiro Fujimori1,2,3, Tomoko Hasegawa2,4 and Ken Oshiro1 REVISED 1 11 August 2020 Department of Environmental Engineering, Kyoto University, C1-3 361, Kyotodaigaku Katsura, Nishikyoku, Kyoto city, Japan 2 Center for Social and Environmental Systems Research, National Institute for Environmental Studies (NIES), 16–2 Onogawa, Tsukuba, ACCEPTED FOR PUBLICATION Ibaraki 305–8506, Japan 4 September 2020 3 International Institute for Applied System Analysis (IIASA), Schlossplatz 1, A-2361, Laxenburg, Austria PUBLISHED 4 Department of Civil and Environmental Engineering, College of Science and Engineering, Ritsumeikan University, Kyoto, Japan 11 November 2020 E-mail: [email protected] Original content from Keywords: poverty, climate change mitigation policy, integrated assessment model this work may be used under the terms of the Supplementary material for this article is available online Creative Commons Attribution 4.0 licence. Any further distribution of this work must Abstract maintain attribution to the author(s) and the title A carbon tax is one of the measures used to reduce GHG emissions, as it provides a strong political of the work, journal citation and DOI. instrument for reaching the goal, stated in the Paris Agreement, of limiting the global mean temperature increase to well below 2 ◦C. While one aspect of a carbon tax is its ability to change income distribution, no quantitative assessment has been made within the context of global poverty. Here, we explore future poverty scenarios and show the extent to which carbon tax revenue, obtained to limit global warming to well below 2 ◦C, has the potential to help eradicate poverty. In order to better understand the relationship between poverty and climate change mitigation policy, we developed a novel modelling framework that includes a module representing poverty indicators in the conventional integrated assessment model. We found that the poverty gap, which is a measure of the shortfall in income relative to the poverty line, is 84 billion US dollars (USD) and that the carbon tax revenue potential for the above-mentioned 2 ◦C consistent climate change mitigation would be 1600 billion USD in 2030. Many low-income countries cannot fill the poverty gap using only their own domestic revenue; however, this shortfall could be met by using a portion of the revenue in high-income countries. Our results demonstrate that climate change mitigation can have a great potential in synergy effects for resolving poverty and illustrates the importance of international cooperation. 1. Introduction Development Goals (SDGs) have been established as post-MDG UN goals. There are 17 goals and one of Currently, the number of people worldwide under them is SDG1 which clearly states that its goal is to severe poverty, below the threshold for decent liv- end poverty. Numerically, the target is ‘to achieve the ing ($1.90 per day in terms of international pur- target of less than 3% of the world living in extreme chasing power parity, PPP), known as the poverty poverty by 2030’. Continuing efforts toward achieve- headcount, is reported as 736 million [1]. The num- ment of SDG1 may lift people out of poverty condi- ber has historically decreased, and is now over 1 bil- tions. lion less than in 1990, despite significant population With respect to climate actions, the Paris Agree- increases in low-income countries during this period. ment [3] defines the long-term international climate This progress has been driven by strong global income policy goal as: ‘holding the increase in the global growth and rising wealth in many low-income coun- average temperature to well below 2 ◦C above pre- tries. Although a large number of people still suffer industrial levels and pursuing efforts to limit the from absolute poverty, poverty reduction has been temperature increase to 1.5 ◦C above pre-industrial very successful over the last couple of decades, as levels’. Along with this long-term climate goal, coun- recognised by the success of the Millennium Devel- tries submitted nationally determined contributions opment Goal (MDG) programme [2]. Sustainable (NDCs), describing their individual near-term © 2020 The Author(s). Published by IOP Publishing Ltd Environ. Res. Lett. 15 (2020) 114063 S Fujimori et al actions toward greenhouse gas (GHG) emissions is built upon a computable general equilibrium reduction. (CGE) model that represents all goods and services Carbon pricing [4, 5], which is often discussed transactions within the economic system. The cli- as an economic measure that will result in reduction mate policy is represented by imposing carbon tax, of GHG emissions, would be a key incentive for act- which is endogenously determined to meet the emis- ors to reduce the CO2 emissions of their activities. sions constraints, and carbon tax is collected from Among carbon pricing measures, a carbon tax is a industrial and household activities emitting GHG useful and efficient economic policy instrument for gases, and then its revenue is recycled to the house- reducing GHG emissions, one that has already been hold. In reality, carbon pricing and carbon taxes may implemented in many countries [5] or is currently not operate this effectively, but the methodology is under discussion [6]. A carbon tax could have vari- thought to offer a suitable simplification of these ous economic consequences through market mech- mechanisms. Within this CGE model, macroeco- anisms, such as changes to the prices of goods, tax nomic indicators and those associated with energy, revenue, and the recycling of such revenue [7]. agriculture, land use are, and GHG emissions are Considering the potential interactions between computed. In this study, we also developed a new poverty and climate change mitigation, one funda- sub-model enabling the simulation of income distri- mental question is that of whether a carbon tax imple- bution and consumption patterns of households so mented for climate change mitigation can be used that individual income class income and expenditure to reduce poverty [8]. In addition to reducing GHG patterns are represented within the model because the additions, carbon tax implementation could be used CGE model classifies only single represented house- to help eradicate poverty by changing income dis- holds for each region. Accordingly, this sub-model tribution through revenue recycling. It may be used consists of income and expenditure modules. The to help eradicate poverty. Some previous studies in former estimates the income distribution using thou- the context of climate change impacts on poverty sands of income segments, while the latter computes [9–12] have shown changes in income inequality changes in the consumption pattern associated with associated with climate change mitigation, as well price changes, given the income for each segment. as in energy poverty, in some countries [13–15]. The primary analysis was conducted using a poverty Moreover, the income equality implications of a line of $1.90 a day (2011 PPP), which is widely used carbon tax have been investigated using national- in international contexts [1]. The macroeconomic scale modelling [16–19]. While there can be another indicators (regional average income loss rates), and instrument changing income equality, for example, price indices computed by the CGE model are fed using Personal Carbon Trading [20, 21], no study to into the poverty module (see supplementary note 1). date has addressed the use of carbon tax revenue to We developed scenarios based on various climate poverty globally, despite this topic being highly relev- policies being implemented by 2050, mainly focus- ant to international development and climate change ing on the year 2030, which is the target year of cur- policies. rent international near-term climate policy decisions Here, we show the extent to which carbon tax associated with the Paris Agreement. We analysed revenue could potentially help with poverty eradic- four scenarios: baseline, NDC, well below 2 ◦C, and ation and demonstrate the importance of interna- 1.5 ◦C (hereafter WB2C and 1.5 C). Baseline reflects tional cooperation in meeting that goal. A scenario the historical trend up to 2015, extended without analysis is undertaken that explores the potential car- additional climate policy. NDC assumes that each bon tax revenues that could be derived under the cli- nation’s emissions are in line with the NDC submit- mate mitigation goals stated in the Paris Agreement ted to the United Nations Framework Convention and estimate and estimate the poverty headcount and on Climate Change for the Paris Agreement by that poverty gap, which represents the deficit of income nation. The WB2C and 1.5 C scenarios are consistent below the poverty line, for around 200 countries (sup- with changes of 2 ◦C and 1.5 ◦C, respectively, assum- plementary tables 1 and 2). We also derived the abso- ing a globally uniform carbon price and implying lute poverty gap and the poverty gap as a portion of that all countries participate in emissions reduction GDP for comparisons with carbon tax revenue. efforts with cost-efficient mechanisms. The emissions under both scenarios are consistent with the recent 2. Materials and methods IPCC report [24]. We adopted the shared socioeco- nomic pathways (SSPs) assumptions as a background We used a state-of-the-art integrated assessment for socioeconomic dynamics [25]. The middle-of- modelling framework, the Asia-Pacific integ- the-road scenario, SSP2, is the default scenario used rated model (AIM) [22, 23] (supplementary in this study, and sensitivity analysis under varying figure 1) (available online at https://stacks.iop.