Using Revenues from Carbon Pricing to Close Infrastructure Access Gaps – Distributional Impacts on Nigerian Households

Abstract

Carbon pricing has been recognized to be the most efficient means for climate change mitiga-tion. However, especially in developing countries, there is concern that respective policies jeopardize development and disproportionately burden the poorest parts of the population. This paper analyzes the distributional impact of an economy-wide carbon tax and fossil fuel subsidy reform on households in Nigeria, Africa’s largest economy. Tax revenues and subsidy savings are assumed to be invested into basic infrastructure provision. The distribution of tax payments as well as of infrastructure access gaps across income groups is estimated by com-bining an environmentally-extended input-output model with household survey data. While in developed countries distributional impacts of carbon pricing have been studied abundantly, studies on developing countries using this method are relatively scarce. In line with previous developing country studies, a carbon tax or subsidy reform are found to be progressive in Ni-geria. Furthermore, access gaps impair primarily rural, lower income households. A compari-son of total revenues and costs shows, however, that universal infrastructure access provision until 2030 is unlikely to be financed solely through carbon pricing. These results suggest that a carbon tax recycled into infrastructure not only poses a better targeted means of redistribu-tion than the existing subsidy regime, but also entails relevant environmental and human de-velopment benefits.