Conference Agenda

This paper studies voluntary demand-side climate transitions in a taste-heterogeneous brown--green economy. We compare two shocks that both reduce demand for carbon-intensive goods in partial equilibrium: a green-preference shock, interpreted as sufficiency, and a carbon tax. The two shocks are not equivalent in general equilibrium. A carbon tax creates a wedge between the consumer and producer prices of the brown good; a preference shock shifts demand directly and works through the endogenous relative brown producer price. With heterogeneous households, the key sufficient statistic for distributional incidence is the difference between each household's exposure to brown consumption and its exposure to brown labor income. Producer price effects redistribute real income according to this gap. In the aggregate, these effects cancel by clearing of the brown goods market. The tax shock therefore generates an aggregate first-order real income and welfare loss equal to the tax wedge on brown consumption, whereas a pure preference shock generates no first-order aggregate fixed preference welfare loss. We show, however, that measured aggregate real income may rise or fall after a preference shock because it contains a preference revaluation term. We characterize rebound, welfare, effectiveness, and illustrate the mechanisms in a five-type calibration.