Distributional Effects of Energy and Climate Policy

(). Distributional Effects of Energy and Climate Policy: Ph.D. Economics. Sydney, Australia: University of New South Wales. Peer reviewed.

This thesis analyses two energy and climate policy instruments – namely renewable energy policy and the European Union Emissions Trading Scheme (EU ETS) – in the context of the distribution of costs and benefits arising from these policies. Household- and industry-level data, as well as market data on carbon and electricity prices are investigated using a combination of descriptive analysis and econometric methods, including time-series regression and choice modelling. Results imply that industry exemptions from contributing to the cost of both renewable energy policy and emissions trading have led to unexpected and considerable profits to the companies covered by those schemes. This has resulted in households bearing the majority of the costs associated with these policies. Exploratory analysis indicates that low-income households are particularly affected by the associated price increases, because they spend a large fraction of their income on electricity and other emissions-intensive goods. This thesis shows that policy makers have many options at their disposal with which these policies can be made more equitable. The main design choices with regards to emissions trading concern the level of free allocation and the use of revenue from the auctions of the remaining allowances not allocated for free. In relation to renewable energy policy, the scope and extent of exemptions for industry from contributing to the cost of the policy and the structure of wholesale and retail electricity markets play a decisive role. Moreover, policy makers should recognise opportunities to reach both environmental and distributional goals across the whole policy portfolio. One example is the use of auctioning revenue from emissions trading to fund energy efficiency measures targeted at vulnerable households. The results of this thesis suggest that there is no basis for pitching climate protection against equity concerns, but rather that there are many opportunities for policy makers to formulate an integrated approach that addresses both issues concurrently.