Scandinavian Working Papers in Economics

EfD Discussion Paper,
Environment for Development, University of Gothenburg

No 25-9: Negative health effects of carbon prices can outweigh the climate benefits in developing countries

Raavi Aggarwal (), Leonard Missbach (), E. Somanathan (), Jan Christoph Steckel () and Thomas Sterner ()
Additional contact information
Raavi Aggarwal: Indian Statistical Institute, New Delhi, India and Technical University of Berlin, Berlin, Germany, and Potsdam Institute for Climate Impact Research, Potsdam, Germany
Leonard Missbach: Potsdam Institute for Climate Impact Research, Potsdam, Germany
E. Somanathan: Indian Statistical Institute, New Delhi, India
Jan Christoph Steckel: Potsdam Institute for Climate Impact Research, Potsdam, Germany and Technical University of Munich, Munich, Germany
Thomas Sterner: University of Gothenburg, Gothenburg, Sweden

Abstract: Climate change mitigation is often assumed to be cheaper in developing countries than in developed countries. Yet, existing analyses frequently ignore the cost-effectiveness of price-based climate policies in the presence of other externalities such as indoor air pollution. Using detailed household data for six representatively selected countries, we examine the demand responses of biomass consumption to higher prices of electricity, liquefied petroleum gas (LPG) and kerosene. We show that for these fuels, carbon pricing can generate substantial domestic health costs resulting from increasing indoor air pollution that exceed the global benefits of climate mitigation in four out of six countries. Our results challenge the notion that climate change mitigation is cheaper in low-income countries relative to high-income countries. The design of climate policies needs to take contextual factors into account, in particular with respect to the fuels used by the poorest.

Keywords: Carbon pricing; Biomass use; Indoor air pollution; Clean cooking

JEL-codes: I10

Language: English

57 pages, November 6, 2025

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