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How carbon pricing affects GDP and employment is dependent to an extent on how the revenues from this policy are used. When carbon pricing is combined with reduction in employers' social security payments, cost of labour is reduced for companies leading to increase in employment. As a result, average wages and household incomes are expected to increase.1,2
A review of over 100 studies by the World Bank on environmental taxes concluded that 75% of studies projected an improvement in employment. When carbon pricing is combined with reduction in income taxes, positive employment effects are expected.3 An International Labour Organization (ILO) study concluded that there would be 0.5% rise in world employment or 14.3 million net new jobs with carbon pricing combined with reduction in labour taxes.4
A recent study by Regional Economic Modeling, Inc. (REMI) explored the potential impact of a modest $10/tonne CO2e revenue-neutral carbon fee which would increase by $10/tonne CO2e each year.5 It suggested that employment would increase in most US regions as a result of 2-3 million jobs over baseline (or a net 1% increase) by 2035.
Employment rate increases in the US with Carbon Fee and Dividend (Carbon Fee of $10/tonne CO2e with yearly increase of $10/tonne CO2e)
Source: Source: The Economic, Climate, Fiscal, Power and Demographic Impact of a National Fee-and-Dividend Carbon Tax5
For Canada, in one scenario of carbon pricing – “fast and deep carbon pricing” in which case emissions would peak at 570 Mt in 2020 and drop steadily to 235 Mt by 2050 – the National Roundtable on the Environment and the Economy forecasted that unemployment rate would have decreased by 0.1% in 2011 and 0.3% by 2020 if carbon pricing was implemented. The employment rate was projected to increase by 0.06%, 0.45%, 0.97%, 1.17% and 1.13% by 2007, 2011, 2020, 2030 and 2050, respectively.6
Employment rate increases with Fast and Deep carbon pricing compared to business as usual
Source: Achieving 2050: A Carbon Pricing Policy for Canada – Technical Report.5
Other studies suggest similar increases in employment rate particularly when carbon pricing is combined with investments in communities with high unemployment since clean energy industries are more labour intensive than fossil fuel industries.7
1. Andersen, M. S. et al. Competitiveness Effects of Environmental Tax Reforms (COMETR). Final report to the European Commission. (National Environmental Research Institute, 2007). at http://www2.dmu.dk/Pub/COMETR_Final_Report.pdf
2. Prime Minister’s Office Economic Council. Environmental and Energy Taxation in Finland - Preparing for the Kyoto Challenge Summary of the Working Group Report. (Prime Minister’s Office Economic Council, 2000). at http://vnk.fi/julkaisukansio/2000/j03-04-ymparisto-ja-energiaverotuksen-...
3. Bosquet, B. Environmental tax reform: does it work? A survey of the empirical evidence. Ecol. Econ. 34, 19–32 (2000).
4. International Labour Organization. World of work report 2009. The global jobs crisis and beyond. (International Labour Organization, 2009). at http://www.ilo.org/wcmsp5/groups/public/---dgreports/---dcomm/documents/...
5. Nystrom, S. & Lucknow, P. The Economic, Climate, Fiscal, Power and Demographic Impact of a National Fee-and-Dividend Carbon Tax. (Regional Economic Models, Inc. (REMI) and Synapse Energy Economics, Inc, 2014). at http://citizensclimatelobby.org/wp-content/uploads/2014/06/REMI-carbon-t...
6. National Round Table on the Environment and the Economy. Achieving 2050: A Carbon Pricing Policy for Canada – Technical Report. (Ottawa, 2008). at http://collectionscanada.gc.ca/webarchives2/20130322143407/http://nrtee-...
7. Boyce, J. & Riddle, M. Cap and Dividend: How to Curb Global Warming While Protecting the Incomes Of American Families. PERI Work. Pap. (2007). at http://scholarworks.umass.edu/peri_workingpapers/108