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Journal Article

When standards have better distributional consequences than carbon taxes


Zhao,  Jiaxin
External Organizations;


Mattauch,  Linus
Potsdam Institute for Climate Impact Research;

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Zhao, J., Mattauch, L. (in press): When standards have better distributional consequences than carbon taxes. - Journal of Environmental Economics and Management.

Cite as: https://publications.pik-potsdam.de/pubman/item/item_27431
Carbon pricing is the efficient instrument to reduce greenhouse gas emissions. Nevertheless, the geographical and sectoral coverage of substantial carbon pricing remains low, often due to concerns about increasing economic inequality. Regula- tions such as fuel economy standards are more popular. Could the reason be that they have an equity advantage over carbon pricing? We develop two models, one representing energy services and the other the carbon-intensity of consumption, to identify the economic situations in which this is the case. First, we prove that an ef- ficiency standard can be more equitable than carbon pricing when consumers prefer high-carbon technology attributes. Evidence from the US vehicle market confirms this finding. Second, we show theoretically, and through a numerical application to the Chinese transport sector, that intensity standards are preferable when richer households consume a greater share of high-emissions goods. Our results hold when the redistribution of carbon pricing revenue is not progressive. These insights may help advance decarbonisation when pricing instruments remain unpopular.