Using carbon pricing revenues to empower low-income households with renewable energy: Distributional analysis for Tanzania

While Tanzania’s greenhouse gas emission levels are still low by international comparison, the country is rapidly carbonizing. Designing climate policy instruments that reconcile mitigation and social equity is crucial for sustainable development. This paper examines how carbon pricing can serve as both a climate and development policy by discouraging the use of fossil fuels, generating substantial revenues, and promoting energy access. Employing a microsimulation approach that integrates multiregional input–output and household-level data, we examine the distributional impacts of four different carbon pricing designs and four compensation schemes on Tanzanian households. The results show that while national carbon pricing would have progressive effects, there would be large horizontal differences and around 10% of low-income households would need to raise their spending by over 2%. Revenues would allow cash or infrastructure transfers of 30-60 USD per eligible household, which would more than offset the burdens of low- and middle-income households. We suggest the use of carbon pricing revenues to provide low-income households with access to renewable energy appliances such as solar lights and solar cookers to empower them through long-term cost and time savings as well as health benefits. Our findings highlight how equitable carbon pricing can advance both social well-being and environmental integrity in low-income countries, contributing to the broader debate on just and sustainable transitions.