Distributional Effects of Environmental and Energy Policy: An Introduction
This chapter reviews literature on the distributional effects of environmental and energy policy. In particular, many effects of such policy are likely regressive. First, it raises the price of fossil-fuel-intensive products, expenditures on which are a high fraction of low-income budgets. Second, if abatement technologies are capital-intensive, then any mandate to abate pollution may induce firms to use more capital. If demand for capital is raised relative to labor, then a lower relative wage may also hurt low-income households. Third, pollution permits handed out to firms bestow scarcity rents on well-off individuals who own those firms. Fourth, low-income individuals may place more value on food and shelter than on incremental improvements in environmental quality. If high-income individuals get the most benefit of pollution abatement, then this effect is regressive as well. Fifth, low-income renters miss out on house price capitalization of air quality benefits. Well-off landlords may reap those gains. Sixth, transition effects could well hurt the unemployed who are already at some disadvantage. These six effects might all hurt the poor more than the rich. This paper discusses whether these fears are valid, and whether anything can be done about them.
This chapter is the introduction for a book to be published by Ashgate that includes 21 previously published papers. I am grateful for comments from Tom Tietenberg, the series editor, and from authors of papers in the book, including Trudy Ann Cameron, Ian Parry, and Kerry Smith. This paper is part of the NBER's research programs in Public Economics (PE) and in Environmental and Energy Economics (EEE). Any opinions expressed are my own and not those of the National Bureau of Economic Research.