Nicholas Bardsley: University of Reading and Walker Institute

Milena Büchs & Sylke Schnepf:

University of Southampton

Can Climate Change Policies be Fair?

Can Climate Change Policies be Fair?

Outline:- regressivity challenge

- effects of redistributive CC policy by area

- implications of data problem for policy analysis

- limitations of static analysis, and of redistribution

Regressivity of Emissions Taxes

EFS/LCF + REAP + other sources 2006-2009

Assumptions:

Prices increase proportionally to CO2 emissions for each good / service;

Behaviour unchanged

02468

1012141618

1 2 3 4 5 6 7 8 9 10

mea

n %

of i

ncom

e

Decile of Equivalised Household Income

CO2 Tax (£100/t) as % of hh income

total

home energy

transport

indirect

Is Transport Different?

EFS/LCF + REAP + other sources 2006-2009

Cf. Dresner & Ekins (2004)

CO2 taxes on motor fuels not progressive

Est .48% of households in lowest income decile had a vehicle by 2009

Cf 33% in 1990s

0

0.5

1

1.5

2

2.5

1 2 3 4 5 6 7 8 9 10

mea

n %

of i

ncom

e

Decile of Equivalised Household Income

Transport: £100/t CO2 Taxes as % of income

total

motor fuels

public transport

air travel

“Rebate” Options

• Reduced fossil fuel use implies an increased scarcity rent - an unearned income transfer

• To avoid regressivity and fuel poverty, the rent can be: – predistributed (tradable permits) OR– redistributed (tax rebates)– Examples:

• Cap and Share, Cap and Dividend (Douthwaite, Barnes)• Personal Carbon Trading (Flemming)• Tax and Dividend (Hansen)

• Assuming implementation issues are soluble (Sorrell 2007, AEA 2008) …

“Rebate” Schemes by Emissions Area

EFS/LCF + REAP + other sources 2006-2009

Annual rebates of mean per adult revenue to each adult in a HH

Net Financial Burden of £100/t CO2 Tax and Rebate

-10

-8

-6

-4

-2

0

2

4

1 2 3 4 5 6 7 8 9 10

Decile of Equivalised Household Income

mea

n %

of

inco

me

total

home energy

transport

indirect

Assumptions:

No behaviour change

Border tarrifs or general adoption

Non-EUETS= transport + indirect - aviation

Assumptions:

No behaviour change

Border tarrifs or general adoption

Interim conclusion: fair climate change policy is possible

-2

0

2

4

6

8

1 2 3 4 5 6 7 8 9 10

mea

n ga

in a

s %

of

inco

me

Decile of Equivalised Household Income

Net Financial Gain from £100/t CO2 Cap/Tax & 'Rebate' scheme

transport

Non-EUETS

Annual rebates of mean per adult revenue to each adult in a HH

Households below the Poverty Line

• Motor Fuels £100/tCO2 Tax Rebated0

10

20

30

40

Pe

rcen

t

-.3 -.2 -.1 0 .1gains_mf_prop

17% lose 83% gain

Households with <60% of Median Income

Low-income, rural motorists

Mean CO2 tax = 3% of income

Mean net burden = 0.3% of income

01

02

03

0

Pe

rcen

t

-.1 0 .1 .2 .3netadonly_mf_prop

01

02

03

04

0P

erc

ent

0 .1 .2 .3tax_mf_pro100

£100/t CO2 Tax motor fuels

£100/t CO2 Tax motor fuels + rebate

Mean for non-EUETS emissions scheme = -1.2% of income

• National Travel Survey contains:– 1 week fuel purchase diary (litres and £)– Interview mileage question (last year’s mileage)

• It is therefore potentially useful for exploring infrequency of purchase issues

• In a world in which low income drivers all had below average mileage, range extension would:a) exaggerate numbers of low-income losers, from rebated CO2 tax

b) understate numbers of low-income losers, from rebated CO2 tax

Data Problem: Range Extension from Infrequency of Purchase

?

NTS Diary vs Interview: Motor Fuels Policy

-15

-10

-5

0

5

10

15

20

25

1 2 3 4 5

% o

f Qui

ntile

Quintile of Gross HH income

Motor Fuel Policy: Erroneous Winners & Losers

err. losers

err. winners

difference

Higher income hhs more likely to have a vehicle; range extension concentrates there

2002-2008

LCF vs NTS: Motor Fuels Policy

Note: typical effects of an aviation policy might also be affected for this reason with LCF data: we don't observe the rate of flying with a 1-year window.

-20

24

6

1 2 3 4 5

excludes outside values

Est. Financial Effects as Multiple of Permit Values, <3 adults HHs

LCF_diary NTS_interview

Q1, % Q5, %

win lose win lose

NTS 87 13 35 65

LCF 83 17 42 58

2006-2008

Differences significant at 1% level

Limitations of "Static Microsimulation"

• Assumes behaviour does not change• But the point of CC Mitigation Policy is changed

behaviour• "SM yields estimates of “initial effects” of policies only"

– Dynamic inferences, therefore, are not licensed

• What else is there ..? – Economists’ (computable) ‘general equilibrium’ models

• Misleading assumptions, poor track record, resource requirements

– hybrid economics / engineering models e.g. E3ME• assumption-heavy, significant resource requirements …

Source: Mario Giampietro and Kozo Mayumi: “The Biofuel Delusion” (2009)

“Trophic Methods” in Ecological Economics

Liebig’s “Law of the Minimum”

industrial / agricultural; degrowth / growth; sharing / individualist; money system

Conclusions• Progressive Climate Change policy is possible• Infrequency of purchase may obscure progressivity of

rebate schemes, in survey data• But redistributive measures cannot offset reduced fossil

energy throughput. Effects of that reduction may not be explorable at high resolution

• Climate change social policy agenda needs to join with debate over far-reaching transformation (e.g. ‘degrowth’ movement)

• That is a political debate over how to live & organise society across the board