Insee Analyses · March 2026 · n° 117

Taxing firm emissions or household emissions: effects by income level and territory

Taxing greenhouse gas emissions does not affect all households equally: the impact varies depending on their standard of living and the type of area in which they live. Households in non periurban rural municipalities spend 2.7 times more on fossil fuels than those living in the inner urban area of Paris and work in sectors that emit 2.8 times more greenhouse gases. As a result, they are more heavily affected by the increase in costs and by the slowdown in economic activity induced by carbon taxation.

According to a model that takes into account territorial disparities as well as the ability of households and businesses to adapt, a carbon tax applied to all national emissions (those of households and businesses), and reducing them by 10%, would lower welfare (measured here solely in terms of household consumption, and therefore excluding any potential gains resulting from stronger public services that such a tax could finance) by around 1% on average. The welfare of rural households would decline around 1.2 times more than that of households in the inner urban area of Paris, and the poorest households would also be more strongly affected.

A tax on direct household emissions alone would primarily affect their energy spending, which accounts for a larger share of the budget of low-income and rural households than of higher-income and urban households. By contrast, taxing businesses alone would have somewhat less regressive effects: the cost would mainly be passed on to wages, affecting all households in a fairly similar way, but it would also affect capital income, which is concentrated among the wealthiest households. Under the model assumptions, this tax would have only limited differences between urban and rural households.

Lastly, for a given emission reduction target, redistributing the tax revenues would slightly increase average welfare. Moreover, redistribution based on both income level and location would make it possible to better target the households most adversely affected by the carbon tax. It would lead to an average welfare gain five times higher than under a uniform redistribution scheme. In that case, however, the welfare of the wealthiest households would still be negatively affected.