Carbon Prices versus Regulatory Standards: Which are Better for Equity?
Carbon pricing is the most efficient instrument to reduce emissions. However, the geographical and sectoral coverage of substantial carbon pricing is low, often due to concerns that pricing may increase economic inequality. Regulatory standards such as fuel economy standards are more popular. But do they have an equity advantage over carbon pricing? We develop two new formal models to identify economic situations, in which standards could be preferred over carbon pricing. First, we prove that an efficiency standard can be more equitable than carbon pricing when consumers exhibit a preference for high-carbon technology attributes. Second, we show theoretically, and by means of a numerical application to the UK transport sector, that intensity standards are preferable when richer households consume more goods with higher carbon intensity. Our results hold when the revenue from carbon pricing is not very progressively redistributed. These insights can help advance decarbonisation when pricing remains unpopular.
Date: 28 January 2021, 11:00 (Thursday, 2nd week, Hilary 2021)
Venue: Virtual meeting via Zoom
Speaker: Jiaxin Zhao (Pre-Doctoral Student, Blavatnik School of Government)
Organising department: Institute for New Economic Thinking
Organiser: Susan Mousley (INET Oxford Admin Team)
Organiser contact email address: events@inet.ox.ac.uk
Part of: INET Oxford Researcher Seminars
Booking required?: Required
Booking url: https://us02web.zoom.us/meeting/register/tZwodOCrrjotHN2l-HS6VIpHhoImuRHz6vef
Audience: Public
Editor: Susan Mousley