EU-wide Carbon Pricing and Options for Revenue Recycling

While the EU has already adopted an EU-wide carbon price for the buildings and transport with the Emissions Trading System 2 (ETS 2), detailed analyses of the macroeconomic and distributional effects are rare. This article applies the macroeconomic model ADAGIO to simulate the effects of EU-wide carbon pricing under six different revenue recycling options. Austria and Poland, two countries that differ considerably in terms of their energy systems and economic structure, are at the centre of the analysis. The focus is on the macroeconomic effects of carbon pricing, its contribution to emissions reduction and its distributional effects.