Lump-sum vs. energy-efficiency subsidy recycling of carbon tax revenue in the residential sector: A French assessment

Abstract

Empirical evidence suggests that carbon taxes are best accepted when their revenue is used to finance abatement measures. This revenue recycling option has however received little attention in modelling assessments. With the aim of filling this gap, we assess the impact of the French carbon tax on energy use for residential heating and compare the cost-effectiveness and distributional impacts of two revenue recycling options: lump-sum payment and subsidies for home energy retrofits. We do so using Res-IRF, an energy-economy model that provides a highly detailed description of housing features (single vs. multi-family, energy efficiency, heating fuel) and key household characteristics (tenancy status, income). We find that the two recycling options offset the regressive impacts of the tax in comparable ways. Lump-sum recycling is particularly effective in reducing inequalities between owner-occupiers and tenants. In turn, subsidy recycling saves energy and increases comfort more cost-effectively. In the discussion, we further point to some advantages of subsidy recycling from both a political and administrative perspective.

Environmental Benefits From Carbon Tax in the Chinese Carbon Market: A Roadmap to Energy Efficiency in the Post-COVID-19 Era

“…It is easy to understand how economic factors act and react when using the general equilibrium model, which provides a simplified depiction of the economy (Bourgeois et al, 2021). For the general equilibrium model, prices and values are simultaneously adjusted to establish the equilibrium and optimization conditions, unlike traditional macro-level models such as linear programming models or input-output models (i.e., the income equilibrium condition, market clearing condition, and zero-profit condition) (Nie et al, 2020).…”

Public Perceptions of Climate Mitigation Policies

“…Implementation details can also impact public support. For example, Bourgeois, Giraudet, and Quirion (2021) find that carbon taxes are best accepted if revenues are earmarked in a transparent way.…”

Carbon taxation: A review of the empirical literature

“…Studies on options to mitigate horizontal inequalities are scarce. Bourgeois et al (2021), addressing this research gap with a focus on inequalities between owner-occupiers and tenants in the French residential sector, simulate the distributional impact of carbon tax revenue recycling via lump-sum payments versus subsidies for home energy retrofits. While lump-sum recycling can reduce inequalities between owner-occupiers and tenants more effectively, inequalities in heating comfort are particularly effectively decreased by subsidy recycling.…”