Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/323823 
Year of Publication: 
2025
Citation: 
[Journal:] DIW Weekly Report [ISSN:] 2568-7697 [Volume:] 15 [Issue:] 27/28 [Year:] 2025 [Pages:] 153-164
Publisher: 
Deutsches Institut für Wirtschaftsforschung (DIW), Berlin
Abstract: 
The previous federal government coalition had planned to pay private households a climate dividend to offset rising carbon prices; a payout process was even prepared. However, the climate dividend is nowhere to be seen in the new federal government's coalition agreement. In the long term, a social compensation mechanism will be important, as prices for fossil and heating fuels will continue to rise due to the European Emissions Trading System (EU-ETS2). The simulations in this Weekly Report show that a climate dividend would contribute significantly to offsetting the financial burden from rising carbon prices, especially for low-earning households, while simultaneously maintaining the incentive of the price signal. Moreover, there are structural differences between urban and rural areas, which a regionally staggered climate dividend can account for. According to the present calculations, such staggering lowers the share of social hardship cases in rural areas, while increasing the share of them in cities. Although a regionally staggered climate dividend may not help to offset hardship cases overall, it could boost acceptance of carbon pricing in rural areas. To increase the targeted effect, the climate dividend could be reduced for higher incomes, which would open up additional fiscal leeway for relieving social hardship cases.
Subjects: 
Carbon pricing
climate dividend
personal and regional redistribution
JEL: 
Q41
D31
R28
Persistent Identifier of the first edition: 
Document Type: 
Article

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