How can regional inequality caused by taxing non-CO₂ greenhouse gases be mitigated? An economy-wide analysis

To mitigate the risk of warming beyond the warming tipping point, countries need to focus on non-CO₂ greenhouse gases (GHGs) emission reductions in addition to action on CO₂. Considering that climate policies may lead to regional disparities and thus affect the achievement of emission reduction targets, ex ante assessment of the regional distributional impacts of global unified carbon pricing mechanism is critical. To this end, this study uses a global multi-regional computable general equilibrium model to assess the regional distributional impacts of including non-CO₂ GHGs in the global unified carbon pricing system and comparatively analyses the improvement effects of multiple types of supporting policies. Compared with a CO₂-only tax, extending carbon pricing to non-CO₂ GHGs exacerbates interregional disparities in economic development and residents' welfare globally but can simultaneously promote regional GHG emission reductions and the low-carbon transition in the energy structure. To mitigate interregional inequalities induced by carbon pricing, regions should consider using carbon tax revenue and climate finance to reduce sectoral indirect tax. This approach can most effectively alleviate the widening disparities in regional economic development and residents' welfare. However, it should be coupled with a moderate increase in the carbon price to ensure the achievement of emission reduction targets and to accelerate the low-carbon energy transition across regions.