Poorer people will be worst hit unless a carbon tax here is well-designed.

A new article from the Economic and Social Research Institute (ESRI) has claimed that, as poorer households spend more of their income on energy than richer people, carbon tax is regressive.

While researches said a well-designed carbon tax could reduce emissions and alleviate income inequality.

They have found that carbon taxation has "an impact on both carbon emissions and on income inequality."

Using data from the Household Budget Survey (HBS) from  2015-2016 - and methods to simulate how much people would buy once a carbon tax was applied - it is estimated a reduction of carbon emissions by 3.9% for a carbon tax increase of €30 per tonne, and by 10.2% for a carbon tax increase of €80 per tonne.

"Poorer households spend a greater proportion of their expenditure on energy, and therefore on carbon tax, than richer households", the ESRI said.

"Carbon taxation is therefore found to be regressive.

"However, if the revenues raised by the tax are returned to households, the overall negative effect on income distribution can be corrected."

It said that if every household is allocated an equal share of the revenues from the carbon tax, income inequality is reduced by 0.5% and 1% - when compared with the overall income inequality of a no tax scenario.

If the revenues are recycled in a manner that targets poorer households, it said that inequality is reduced even more - by 1.2% and 2.8%.'

'Congestion charge'

The research article added: "Further reductions in carbon emissions could also come from new policy measures, such as congestion charging or improved public transportation.

"Such measures would influence the degree to which consumers switch from high carbon consumption to lower carbon alternatives".

The article's author, Miguel Tovar Reaños, said: "This research finds that environmental and distributional policy goals are not necessarily in conflict if the policy is designed correctly.

"Using Irish data, we confirm that carbon taxation is an effective way of reducing carbon emissions, which has been found to be the case in other jurisdictions worldwide.

"The existing tax and social welfare system is the obvious way to recycle the revenues in a targeted manner.

"This is also likely to be cheaper to administer than a 'carbon cheque'.

"Forthcoming research will discuss how to cycle the revenues through the tax and welfare system for Ireland."