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Efficient and Equitable Policy Design: Taxing Energy Use or Promoting Energy Savings?

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  • Florian Landis
  • Sebastian Rausch
  • Mirjam Kosch
  • Christoph Böhringer

Abstract

Should energy use be lowered by using broad-based taxes or through promoting and mandating energy savings through command-and-control measures and targeted subsidies? We integrate a micro-simulation analysis, based on a representative sample of 9,734 households of the Swiss population, into a numerical general equilibrium model to examine the efficiency and equity implications of these alternative regulatory approaches. We find that at the economy-wide level taxing energy is five times more cost-effective than promoting energy savings. About 36% of households gain under tax-based regulation while virtually all households are worse off under a promotion-based policy. Tax-based regulation, however, yields a substantial dispersion in household-level impacts whereas heterogeneous household types are similarly affected under a promotion-based approach. Our analysis points to important trade-offs between efficiency and equity in environmental policy design.

Suggested Citation

  • Florian Landis & Sebastian Rausch & Mirjam Kosch & Christoph Böhringer, 2019. "Efficient and Equitable Policy Design: Taxing Energy Use or Promoting Energy Savings?," The Energy Journal, , vol. 40(1), pages 73-104, January.
  • Handle: RePEc:sae:enejou:v:40:y:2019:i:1:p:73-104
    DOI: 10.5547/01956574.40.1.flan
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    1. Sebastian Rausch & Thomas Rutherford, 2010. "Computation of Equilibria in OLG Models with Many Heterogeneous Households," Computational Economics, Springer;Society for Computational Economics, vol. 36(2), pages 171-189, August.
    2. Tammy M. Thompson & Sebastian Rausch & Rebecca K. Saari & Noelle E. Selin, 2014. "A systems approach to evaluating the air quality co-benefits of US carbon policies," Nature Climate Change, Nature, vol. 4(10), pages 917-923, October.
    3. Gilbert E. Metcalf, 2009. "Market-Based Policy Options to Control U.S. Greenhouse Gas Emissions," Journal of Economic Perspectives, American Economic Association, vol. 23(2), pages 5-27, Spring.
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    3. Hänsel, Martin C. & Franks, Max & Kalkuhl, Matthias & Edenhofer, Ottmar, 2022. "Optimal carbon taxation and horizontal equity: A welfare-theoretic approach with application to German household data," Journal of Environmental Economics and Management, Elsevier, vol. 116(C).
    4. Lucas Bretschger & Matthias Leuthard & Alena Miftakhova, 2024. "Boosting Sluggish Climate Policy: Endogenous Substitution, Learning, and Energy Efficiency Improvements," CER-ETH Economics working paper series 24/391, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
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    6. Landis, Florian & Rausch, Sebastian, 2019. "Policy Instrument Choice with Co-Benefits: The Case of Decarbonizing Transport," Conference papers 333103, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    7. Lijun Zeng & Wencheng Zhang & Muyi Yang, 2023. "A Bi-Level Optimization Model for Inter-Provincial Energy Consumption Transfer Tax in China," Energies, MDPI, vol. 16(21), pages 1-20, October.
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    10. Hübler, Michael & Wiese, Malin & Braun, Marius & Damster, Johannes, 2024. "The distributional effects of CO2 pricing at home and at the border on German income groups," Resource and Energy Economics, Elsevier, vol. 77(C).
    11. Xue, Jian & Guo, Meichen & Shi, Shaoqing & Zhao, Laijun, 2024. "Energy-conservation model of inter-provincial cooperation that accounts GDP and social benefits," Energy, Elsevier, vol. 290(C).
    12. Colmenares, Gloria & Löschel, Andreas & Madlener, Reinhard, 2019. "The rebound effect and its representation in energy and climate models," CAWM Discussion Papers 106, University of Münster, Münster Center for Economic Policy (MEP).
    13. Florian Landis & Adriana Marcucci & Sebastian Rausch & Ramachandran Kannan & Lucas Bretschger, 2019. "Multi-model comparison of Swiss decarbonization scenarios," Swiss Journal of Economics and Statistics, Springer;Swiss Society of Economics and Statistics, vol. 155(1), pages 1-18, December.
    14. Shao, Shuai & Xu, Le & Yang, Lili & Yu, Dianfan, 2024. "How do energy-saving policies improve environmental quality: Evidence from China’s Top 10,000 energy-consuming enterprises program," World Development, Elsevier, vol. 175(C).

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