THE ECONOMIC AND DISTRIBUTIONAL IMPACTS OF AN INCREASED CARBON TAX WITH DIFFERENT REVENUE RECYCLING SCHEMES. ESRI RESEARCH SERIES NUMBER 95 OCTOBER 2019

The recent all Government Climate Action Plan proposes an increase in the Irish carbon tax along a trajectory which reaches C80 by 2030. In line with this, this study investigates the economic, household level and environmental impacts of increasing the current carbon tax in Ireland from C20 per tonne of CO2 to C30 in 2020, further increasing it by C5 annually, thus reaching C80 (in nominal terms) by 2030. In our analysis, we examine not only the impacts of the increase in carbon tax alone, but also the impacts of how the carbon tax revenue is used, i.e. recycled. Our analysis shows that increasing the carbon tax will help Ireland reduce its emissions somewhat, but more initiatives are needed to reach the EU targets. Furthermore, an increase in the carbon tax will have limited impacts on GDP. The choice of how to use the revenues from the increased carbon tax will have significant implications for both macroeconomic impacts and household distributional impacts. Depending on the policy goal, the appropriate recycling scheme can reduce GDP impacts, decrease government debt, limit inflation or decrease inequality across households types