The distributional effects of carbon pricing across countries

We use a quantitative international trade model with climate policies to explore the distributional effects of carbon pricing across countries. Our analysis addresses two key questions facing global climate action: which countries bear the greatest burden of climate policies, and how these policies can be designed to ensure fairness. We present three main findings. First, efficient climate policies that disregard distributional concerns significantly exacerbate between-country inequality. Second, equity can be achieved alongside efficiency when climate policies are complemented by economically feasible international transfers, either equalizing carbon tax costs or accounting for historical emissions, with minimal economic impact on high-income countries. Third, carbon tax schemes with heterogeneous pricing – featuring lower rates for low- and middle-income countries – do not necessarily result in fairer outcomes.