Conference Agenda

Energy system and power market models refrain from distinguishing between private and social discount rates. We devise a strategy to account for diverging private and social discount rates in intertemporal optimization frameworks, resulting in an optimal carbon tax above the Pigouvian tax when private discount rates exceed the social one. We quantify results for the European power market until 2050. Not distinguishing between private and social discount rates yields carbon emissions of 0.83 Gt in 2050 with a rising trend from 2020 onwards. Distinguishing between private and social discount rates achieves full decarbonization (-0.15 Gt in 2050) and avoids damages of 1,386 billion EUR until 2050. Results explain missing investments of firms and suggest that policymakers should announce high future carbon prices to incentivize sufficient investments into clean technologies.

This study assesses the long-term cost-effectiveness and distributional impacts of various energy efficiency policies to decarbonize the French residential sector. It intro- duces Res-IRF 4.0, a significantly enhanced version of a behaviorally- and technologically- rich model of residential energy demand in France. Our analysis reveals that neither the Fit-for-55 objective nor carbon neutrality can be achieved with current policies. However, we demonstrate that the progressive implementation of new mitigation poli- cies generates net socio-economic benefits. In particular, newly implemented direct subsidies that direct support toward low-income households and deep renovation out- perform precedent attempts. Mandatory renovation for privately rented dwelling and carbon tax, plays a significant role in enhancing socio-economic balance. Finally, we illustrate that banning the adoption of new natural-gas boilers will significantly ac- celerate the transition to low-carbon fuels with social benefits outweighing additional costs. Our research highlights the importance of a multifaceted approach to reach climate and social objectives. Overall, by incorporating policy frictions in bottom-up modelling, we provide more plausible long-term policy assessments.

Carbon taxes are popular climate mitigation tools among economists, because

of their cost-effectiveness, but opposition to the policy has shifted the

debate towards justice and redistributional concerns. Going beyond income

inequality, recent studies highlight the need to address horizontal inequalities

in the impacts of climate change mitigation. At the same time, calls for

increasing the solution space to climate change through demand-side policies

have become louder. Based on the concept of lifestyles, this study develops an

agent-based model to investigate the mechanisms of environmental tax reforms

in a heterogeneous population. The lifestyle concept allows the depiction of

horizontal differences in work time, purchasing and consumption behaviours,

which can explain unequal responses to and hence impacts of such a policy.

The model introduces lifestyles by assuming distinct time and energy requirements

for different types of consumption, as well as heterogeneous preferences

and levels of unpaid labour. It is calibrated to the context of Germany and

allows for identification of the most vulnerable groups, which can be characterised

by an intersection of specific characteristics. This is crucial for policy

impact assessment as well as the political feasibility of carbon taxation.

We integrate vertical (across income groups) and horizontal (within income groups) distributional effects of climate policy in a Mirrlesian optimal taxation framework to analyze optimal carbon pricing, energy taxes (or subsidies) and income tax adjustments. Our framework explicitly allows to incorporate loss aversion – an important behavioral economic feature that strongly affects the welfare-implications of horizontal distributional effects. We calibrate our model to German household data that represent a matrix of households with different labor productivities and energy intensities. We find that loss aversion significantly increases welfare losses of climate policy in the model, suggesting that welfare cost might be higher than accounted for by economists who usually disregard loss aversion and horizontal distributional effects. Redistributing the revenues from carbon pricing as a uniform rebate can hardly alleviate these losses as it does not account for the heterogeneity of burdens stemming from climate policy. Contrary, policies that compensate households dependent on their historic energy expenditure can reduce welfare losses considerably. Our findings emphasize the need to develop more differentiated compensation schemes to address the unequal costs of climate policy.