How billions from carbon pricing could enforce climate protection and social compensation

Revenues could finance a climate money, increase climate protection investments or reduce income taxes.

Climate dividend can provide socially just relief and ensure acceptance of the CO2 price through direct transfer. | Photo: Shutterstock/Ververidis Vasilis


Current discussions on climate protection measures revolve around instruments such as speed limits and regulation of e-fuels. In the process, the carbon price, with its potential for high revenues and distributive justice, is being forgotten. Calculations by the Kopernikus Project Ariadne, led by the Berlin-based climate research institute MCC (Mercator Research Institute on Global Commons and Climate Change), show that Germany could earn up to 227 billion euros from national and European emissions trading between 2021 and 2030. These funds could strengthen social acceptance for the carbon price, cushion costs for low-income households, increase climate protection investments or reduce income taxes via a climate money.

“We examined five options for using the funds from carbon pricing and screened them for their effects,” explains Matthias Kalkuhl, head of the MCC working group Economic Growth and Human Development, and head of the Ariadne Working Group Tax Reform. Along effects on climate protection, administration and economy, the Ariadne-Dossier gives an overview of different possible uses of the carbon price revenues.

No measure stands out as being the best; each has its advantages and disadvantages. However, a climate money is particularly well suited to distributing the burden and promoting acceptance of the carbon price because of the transparent and visible reimbursement of revenues. Other instruments, such as lowering electricity charges or income taxes, have economic or distributional advantages, but these tend not to be visible to people who may not appreciate the the relief. The payment of carbon price revenues into a fund from which investments could be subsidised must always be reviewed for its effects on emission reductions. In addition, subsidy needs and revenues from carbon pricing develop in opposite directions: when carbon prices are high, the need for investment subsidies is low, whereas when carbon prices are low, the corresponding revenues are insufficient to provide subsidies. Therefore, the funding pots would have to be adjusted frequently to the levels of the actual carbon price revenues.

Reference of the cited article:
Kalkuhl, M., Kellner, M., Roolfs, C., Rütten, K., George, J., Bekk, A., Held, A., Heinemann, M., Eydam, U., aus dem Moore, N.,  Pahle, M., Schwarz, A., Fahl, U., Blum, M., Treichel-Grass, K., 2023, Optionen zur Verwendung der Einnahmen aus der CO2-Bepreisung. Kopernikus-Projekt Ariadne, Potsdam.