Household cost-of-living impacts from the Emissions Trading Scheme and using transfers to mitigate regressive outcomes

Cory Davis, Boston Hart and Benjamin Stubbing ()
Additional contact information
Benjamin Stubbing: The Treasury, https://www.treasury.govt.nz

Treasury Analytical Notes Series from New Zealand Treasury

Abstract: The New Zealand ETS is the Government’s main tool for reducing greenhouse gas emissions. As emissions budgets tighten towards the achievement of longer-term targets , so will the supply of carbon credits. This will exert upward pressure on the price of carbon, which will flow through to the price of carbon intensive goods and services. While this price signal is the key mechanism of the ETS, it will have regressive impacts on household cost of living, particularly in the short-term; cost increases may be unavoidable for lower income households, and will consume a larger fraction of their disposable income. In this paper we use Treasury’s TAWA microsimulation model to show how hypothetical increased carbon prices could flow through to household expenditures, and how the impacts could vary across the household equivalized disposable income (HEDI) distribution. The expenditure impacts are regressive. Different household types have different energy use and income characteristics and are covered by different income support payments. With an eye to potential mitigations of regressive cost-of-living impacts, we investigate expenditure impacts for various household types and for households receiving different income support payments. We then model the net household impact of increased carbon prices and hypothetical offsetting transfers, which include universal payments and increases to existing transfers. We compare the fiscal costs and poverty impacts of these transfers. This paper focuses solely on the hypothetical modelling exercise and does not comment on the relative merits of the different transfers modelled or more broadly on the use of ETS revenue.

Pages: 19 pages
Date: 2024-03-19
New Economics Papers: this item is included in nep-ene and nep-env
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.treasury.govt.nz/sites/default/files/2024-02/an24-02.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nzt:nztans:an24/02

Access Statistics for this paper

More papers in Treasury Analytical Notes Series from New Zealand Treasury New Zealand Treasury, PO Box 3724, Wellington 6140, New Zealand. Contact information at EDIRC.
Bibliographic data for series maintained by CSS I&T Web & Publishing, The Treasury ().