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Who Pays For Climate Regulation?

Jan 2014
Policy Brief
By  Charles Kolstad
This policy brief examines the question of who ultimately pays for U.S. greenhouse gas regulation to deal with climate change. When a regulation raises costs for a polluter, those costs are borne by owners, workers, and customers, to varying degrees. When the price of intermediate products change, then industries that buy those intermediate products may also pass costs along. Tracing the path of such price changes through the economy is necessary to determine who ultimately bears the costs of a regulation. Regional differences among final consumers appear modest, though labor in coal-intensive industries may suffer. Most industrial sectors are modestly impacted though a few, such as electric power, cement, and fertilizer, are hit hard by carbon regulations. In terms of consumers, carbon regulations do appear to be somewhat regressive, with households in the lowest 10 percent of the income distribution paying roughly three times what the richest 10 percent pays, in terms of cost as a percentage of income. These findings can help shape a fairer and more politically palatable path for regulating greenhouse gases in the United States, when and if the politics are right for such an action.