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Horizontal Equity Effects in Energy Regulation

Carolyn Fischer, William A. Pizer

Chapter in NBER book Energy Policy Tradeoffs between Economic Efficiency and Distributional Equity (2019), Tatyana Deryugina, Don Fullerton, and Billy Pizer, organizers
Conference held September 16-17, 2016
Published in March 2019 by Journal of the Association of Environmental and Resource Economists, volume 6, number S1 (University of Chicago Press)

Choices in energy regulation, particularly whether and how to price externalities, can have widely different distributional consequences both across and within income groups. Traditional welfare theory focuses largely on effects across income groups; such “vertical equity” concerns can typically be addressed by a progressive redistribution of emissions revenues. In this paper, we review alternative economic perspectives that give rise to equity concerns within income groups, or “horizontal equity,” and suggest operational measures. We then apply those measures to a stylized model of pollution regulation in the electricity sector. In addition, we look for ways to present the information behind those measures directly to stakeholders. We show how horizontal equity concerns might overshadow efficiency concerns in this context.

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Document Object Identifier (DOI): https://doi.org/10.1086/701192

This chapter first appeared as NBER working paper w24033, Horizontal Equity Effects in Energy Regulation, Carolyn Fischer, William A. Pizer
 
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