Inequality along the European Green Transition

Guido Ascari, Andrea Colciago, Timo Haber and Wöhrmüller, Stefan

No 20006, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: The EU aims for 42.5% green energy consumption by 2030. What are the effects of the European green transition on inequality? We answer this question using a heterogeneous-agent model with non-homothetic preferences for energy and non-energy goods, calibrated to European data. We study the impact of an increase in carbon taxes designed to meet the EU target under different revenue-recycling strategies. Redistributing tax revenues via uniform transfers reduces consumption inequality, shifts the welfare burden to high-income households, but leads to significant output losses. Subsidizing green energy producers boosts energy production, reduces output losses, and requires a smaller carbon tax to meet the EU target. However, it increases consumption and income inequality, with the highest welfare costs borne by low income and asset-poor households. Our findings highlight key trade-offs between equity and efficiency in green transition policies.

Keywords: Inequality (search for similar items in EconPapers)
JEL-codes: E6 Q43 Q52 (search for similar items in EconPapers)
Date: 2025-03
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