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Carbon pricing and household welfare: evidence from Uganda

Published online by Cambridge University Press:  28 October 2024

Raavi Aggarwal Open the ORCID record for Raavi Aggarwal [Opens in a new window] ,
Sinem H. Ayhan Open the ORCID record for Sinem H. Ayhan [Opens in a new window] ,
Michael Jakob  and
Jan Christoph Steckel Open the ORCID record for Jan Christoph Steckel [Opens in a new window]
Raavi Aggarwal*
Affiliation:
Mercator Research Institute on Global Commons and Climate Change, Berlin, Germany Technische Universität Berlin, Berlin, Germany Indian Statistical Institute, Delhi, India
Sinem H. Ayhan
Affiliation:
Leibniz Institute for East and Southeast European Studies (IOS), Regensburg, Germany
Michael Jakob
Affiliation:
Climate Transition Economics, Berlin, Germany
Jan Christoph Steckel
Affiliation:
Mercator Research Institute on Global Commons and Climate Change, Berlin, Germany Brandenburg University of Technology, Cottbus, Seftenberg, Germany
*
*Corresponding author: Raavi Aggarwal; E-mail: raavi.aggarwal@outlook.com
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Abstract

Policymakers frequently voice concerns that carbon pricing could impair economic development in the short run, especially in low-income countries such as Uganda. Using a consumer demand system for energy and food items, we assess how households’ welfare, and demand for food and energy, would respond to a carbon price of USD40/tCO2. We find welfare losses of 0.2–12 per cent of household expenditure on food and fuel, due to the carbon price. Average demand for electricity and kerosene decline by 11 and 20 per cent respectively, while firewood demand rises by 10 per cent on average. We observe shifts within food consumption baskets, with declines in the demand for meat & fish, and vegetables, alongside an increase in cereal consumption. Household nutrition is adversely impacted, with declines in protein and micronutrient intake across the population. Complementary social protection policies such as cash transfers are therefore required to ease adverse effects on economic development in Uganda.

Keywords

carbon pricingcensored EASI demand systemdistributionhousehold welfare

JEL classification

Q56: Environment and Development • Environment and Trade • Sustainability • Environmental Accounts and Accounting • Environmental Equity • Population Growth D12: Consumer Economics: Empirical Analysis R15: Econometric and Input–Output Models • Other Models Q41: Demand and Supply • Prices

Information

Type
Research Article
Information
Environment and Development Economics , Volume 30 , Issue 1 , February 2025 , pp. 1 - 25
Copyright
Copyright © The Author(s), 2024. Published by Cambridge University Press

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