Carbon pricing in Germany's road transport and housing sector: Options for reimbursing carbon revenues

Manuel Frondel and Stefanie Schubert

No 869, Ruhr Economic Papers from RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen

Abstract: In 2021, Germany will launch a national emissions trading system (ETS) in its road transport and housing sectors. This climate policy instrument aims at raising the energy cost burden of those households and firms that consume fossil fuels, the major source of carbon dioxide (CO2) emissions. A promising approach to secure public acceptance for such a carbon pricing would be to entirely reallocate the resulting "carbon" revenues to consumers. This article discusses three alternatives: a) a per-capita reallocation to private households, b) the reduction of electricity prices by, e.g., decreasing the electricity tax, as well as c) targeted financial aid for vulnerable consumers, such as increasing housing benefits. To estimate both the revenues originating from carbon pricing and the resulting emission savings, we use price elasticities on individual energy consumption in the road transport and housing sector from the empirical literature. Most effective with respect to alleviating the burden of poor households would be increasing housing benefits. While this measure would not require large monetary resources, we argue that the remaining revenues should be preferably employed to reduce Germany's electricity tax, given the steadily increasing amount of electricity generated by renewable energy technologies.

Keywords: Electricity tax; housing benefits; distributional effects (search for similar items in EconPapers)
JEL-codes: D12 Q21 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-ene, nep-env and nep-reg
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Journal Article: Carbon pricing in Germany's road transport and housing sector: Options for reimbursing carbon revenues (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:rwirep:869

DOI: 10.4419/96973006

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