Conference Agenda

This paper studies whether environmental policy fosters green consumption

and whether this demand-side transmission depends on the distribution

of income. We construct a cross-country measure of household expenditure on

Environmental Goods and Services (EGS) for 34 countries over 1995–2019 and

compare green consumption with brown consumption. Green consumption is

substantially more income-elastic than brown consumption, suggesting that

demand for EGS remains closely tied to purchasing power. Non-market environmental policy is associated with a stronger response of green than brown

consumption, consistent with a composition effect within household demand.

This response is stronger when a larger share of income is received by the

top 10 percent, while a higher bottom 50 income share does not mechanically

strengthen green demand. Accounting simulations show that these distributional

margins shape the green–brown policy differential. A validation exercise

using consumption-based emissions further indicates that the policy response

is not associated with a large emissions-weighted expansion of demand. Overall,

the findings indicate that the strength of the demand-side response to

non-market environmental policy depends on where income is located in the

distribution.