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Income inequality and carbon consumption: evidence from environmental Engel curves

Lutz Sager

No 285, GRI Working Papers from Grantham Research Institute on Climate Change and the Environment

Abstract: This paper analyses the relationship between the distribution of income and the carbon dioxide content of household consumption. Household carbon is estimated by linking expenditure data to productive sectors and their carbon intensity derived through input-output analysis. Environmental Engel curves (EECs) are estimated, which describe the relationship between household income and CO2 in the United States between 1996 and 2009. A second-degree polynomial specification in income is found to approximate well the fit of more flexible nonparametric models. These parametric EECs are used to decompose the within-year household carbon inequality as well as the evolution of household carbon over time. In both cases, household income appears to be a main driver of carbon consumption. A potential “equity-pollution dilemma” is described and a method to quantify it is proposed. Assuming (conditional) homogeneity in preferences, EEC estimates predict that progressive income transfers would raise household carbon by 5.1% at the margin and by about 2.3% under complete income redistribution in 2009.

New Economics Papers: this item is included in nep-ene and nep-env
Date: 2017-11
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