When environmental and redistribution concerns collide: The case of electricity pricing

Feger, Fabian; Radulescu, Doina (2020). When environmental and redistribution concerns collide: The case of electricity pricing. Energy economics, 90, p. 104828. Elsevier 10.1016/j.eneco.2020.104828

Text 1-s2.0-S0140988320301687-main.pdf - Published Version Restricted to registered users only Available under License Publisher holds Copyright. Download (2MB)

Countries worldwide face major income inequality and environmental challenges. However, recent social upheavals reveal the conflict of interests induced by policies designed to address these concerns. One example relates to residential electricity, where volumetric grid charges and taxes may impede the affordability of electricity. We develop and calibrate a model that captures the social planner's trade-off between inequality aversion and environmental concerns. We employ panel data on 105,000 households in the Swiss Canton of Bern from 2008 to 2013, including electricity consumption, household income and tax payment characteristics. The results show that with inequity aversion and no negative environmental externalities electricity consumption should be subsidised by income tax revenue. With negative environmental externalities, or asymmetric information between the government and the utility, end-user electricity prices are shifted upwards. For high degrees of inequality aversion, the optimal electricity end-user price is below the marginal cost, even in the presence of negative environmental externalities.

Interest & Impact

Downloads

4 since deposited on 04 Mar 2021
1 in the past 12 months

Citations

5 Citations in Web of Science ®
6 Citations in Scopus

Search

in Google Scholar™

Services

Actions (login required)

Edit item

Actions (login required)

Edit item