Pricing energy consumption and residential energy-efficiency investment: An optimal tax approach

Claude Crampes, Norbert Ladoux and Jean-Marie Lozachmeur ()
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Norbert Ladoux: TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement
Jean-Marie Lozachmeur: TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, CNRS - Centre National de la Recherche Scientifique

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Abstract: We analyze a Pareto optimal income tax problem à la Mirrlees (1971) in which households consume three types of goods: energy goods, energy efficient investments and non-energy goods. The two main ingredients of our normative analysis are: i) an indirect relationship between energy and the satisfaction of energy needs, as energy-efficient investments transform energy into services such as light, heating, and air conditioning; and, ii) imperfect information of the policy designer as regards the level of energy efficiency of households' housing and their labor market productivity. Each household differs with respect to these two latter characteristics, and the government designs a non-linear income tax combined with energy and energy efficient investment non linear pricing that maximizes a weighted sum of households' utilities. We show that a benevolent social planner should distort energy prices in a way that depends on the difference between the saturation of energy needs and the complementarity between energy and the level of energy efficiency in the provision of energy services. A sufficient condition for energy consumption to be subsidized is that the rebound effect is small. Second, when individuals can invest in energy efficiency on top of energy consumption, these investments should always be subsidized and the marginal subsidy should always be higher than the one on energy consumption.

Keywords: Optimal income taxation; Indirect taxation; Energy services; Energy efficiency; Energy consumption (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-ene, nep-ger, nep-pbe, nep-pub and nep-reg
Note: View the original document on HAL open archive server: https://hal.science/hal-04189094v1
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Citations: View citations in EconPapers (1)

Published in Journal of Public Economic Theory, inPress, ⟨10.1111/jpet.12655⟩

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Related works:
Journal Article: Pricing energy consumption and residential energy‐efficiency investment: An optimal tax approach (2024)
Working Paper: Pricing energy consumption and residential energy-efficiency investment: An optimal tax approach (2023)
Working Paper: Pricing energy consumption and residential energy-efficiency investment: An optimal tax approach (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04189094

DOI: 10.1111/jpet.12655

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