Double Progressivity of Infrastructure Development through Carbon Pricing - Insights from Nigeria

Concerns over adverse impacts on poverty and inequality discourage many lower-income countries from regulating their greenhouse gas emissions, despite being highly vulnerable to climate change. This paper analyses the distributional effects of carbon pricing and revenue recycling in basic infrastructure development in Nigeria. We assess the income impacts of a carbon tax based on microsimulations, combining an environmentally-extended input-output model with household survey data. Our results suggest double progressivity. That is, lower-income households would bear a relatively lower tax burden while enjoying greater infrastructure access gains. Hence, while carbon pricing revenues are unlikely to suffice to finance universal infrastructure access, the policy approach can serve as entry point to align environmental with sustainable development goals