The associated costs of decarbonization transitions may not be borne evenly by all members of society, and many modeled pareto-efficient solutions for least-cost decarbonization transitions either report only on aggregate welfare or rely on the implication that the winners will compensate the losers to satisfy individual welfare requirements. Whether and how this compensation occurs may have important implications for the welfare impacts of decarbonization policies and technology transitions on individual households.
This study evaluates the household-level impacts of decarbonization policies and technology transitions on energy and energy service spending to understand the distribution of costs among households as well as how potential mechanisms for revenue redistribution may affect the progressivity of the distribution of the costs of transition. Using US-REGEN and Consumer Expenditure Survey data, household-level evolution of spending is projected to compare household differences in spending under current and potential U.S. carbon policy.
This analysis found that absent revenue redistribution households experience increased energy spending across all studied scenarios. Absolute increases in spending are concentrated at higher income levels but lower income households face spending increases that are a much greater proportion of their existing energy costs. Allowing revenue-positive mechanisms to redistribute their revenue to households reverses this trend for lower income households who could see a decrease in net energy spending, while higher income households only partially offset the additional costs. Changing the method of redistribution has important implications for the distribution of returned revenue both between and within income classes.