This study investigates the economic and distributional impacts of implementing a tax on CO₂ emissions in Brazil. It develops a multisectoral model with input-output linkages across different goods and services, greenhouse gas emissions, and heterogeneous agents representing consumers at different income levels. To measure the emissions of each product, an original database was constructed at the input-output matrix level. A carbon tax per ton of CO₂ is added to the price of goods to encourage the reduction of total emissions in line with Brazil’s aggregate target under the Glasgow Pact for 2030. Firms and individuals across sectors and income brackets allocate consumption (intermediate and final) and labor heterogeneously, and are therefore affected differently by the reform. For example, sectors such as Transport, which rely heavily on more polluting inputs, may be more penalized. Wealthier individuals, who consume more services—which are generally less polluting—will benefit or be less adversely affected.

Higher deforestation rates require an increase in the cost per ton of carbon to offset the rise in aggregate emissions, intensifying the economic impacts. This model enables simulation of the distributional effects of introducing CO₂ emission taxation and evaluation of different revenue redistribution schemes.

Researcher: Cézar Santos
EPGE Brazilian School of Economics and Finance (FGV EPGE)

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