Carbon taxes, industrial production, welfare and the environment

Conventional wisdom holds that, ignoring environmental benefits, carbon taxes should adversely affect low-income countries more than they should affect high-income regions. Simulating various ranges of optimal carbon taxes and testing their impacts, this study draws an opposite conclusion to the above assertion. However, when the model is adjusted to reflect benefits from environmental cleanup, carbon taxes create welfare gains in all regions except for low-income countries. In addition, implementing carbon taxes reduces environmental damages by approximately 50% in absolutely all the six regions considered. Notwithstanding the existence of a tradeoff between welfare and environment for low-income countries implies that energy conservation policies aimed at lowering greenhouse gas emissions would leave people worse-off in these countries.