2. Distributional Effects By Sector and Region

The energy industry generally, and the coal mining industry particularly, will experience the greatest impacts from a carbon tax, under which the tax rate on coal, a carbon-intensive fuel, will be relatively high. Compared to the business-as-usual scenario, coal output may decrease by 25 percent and prices may rise by 35 percent by 2020 under a tax that stabilizes emissions at 1990 levels (Jorgenson et al., 1992). Electric utilities, the next most affected sector, face output losses and price increases of just over 5 percent compared with the projected baseline, mainly because they use coal. But these reductions do not imply absolute declines because substantial growth in output is projected for both sectors in the baseline. Some railroads would suffer adverse impacts since coal makes up a substantial fraction of their freight traffic. Of course, other industries, such as the natural gas and renewable energy industries, would probably do better if a carbon tax were enacted.

Regional impacts of a carbon tax inevitably correspond to sectoral impacts. Coal mining states, such as West Virginia and Wyoming, would be disproportionately affected. But, according to one study, the Pacific Northwest would fare relatively well because of the availability of cheap hydropower - assuming such power continues to be heavily subsidized (DeWitt, Dowlatabadi, and Kopp, 1991). Global warming, like a carbon tax, would also affect some regions and industries disproportionately. Along with coastal areas, regions dependent on agriculture, water supply, and forestry would suffer most (OECD, 1996).

To summarize, studies predict that a carbon tax will be only mildly regressive for households, and those effects could be offset by revenue recycling and cost-of-living adjustments in government transfer programs. The distribution impacts of a carbon tax might well be no worse than those of global warming itself. However, coal mining and coal mining regions would be significantly affected, since coal output would fall relative to a business-as-usual scenario and, assuming a sufficiently high tax, would fall absolutely as well.