Carbon Pricing and Redistribution: A Microsimulation Analysis for Belgium

We simulate the distributional effects of a €45/tCO2 carbon price on Belgian households’ heating and transport fuels using microdata from the 2016 Household Budget Survey. Without compensation, the policy is regressive and increases energy poverty, with especially large burdens for singles, seniors, and households heating with oil. We compare three revenue-recycling designs: equal transfers per household, equal transfers per capita, and a fuel-type-differentiated scheme that provides larger supplements to fossil-heated households. Per-household recycling protects vulnerable households better than per-capita recycling, which tends to undercompensate small households. Differentiating transfers by heating fuel further reduces large losses and within-income-group dispersion, and it prevents an increase in energy poverty while preserving overall progressivity of the reform.