Household Sector Carbon Pricing, Revenue Rebating, and Subjective Well-Being: A Dollar is not a Dollar

Heinz Welsch

No V-444-24, Working Papers from University of Oldenburg, Department of Economics

Abstract: Carbon pricing is on the rise, as evidenced, for example, by the European Commission’s proposal to extend the trade in carbon emissions to the building and transport sectors. An important feature of carbon pricing is that it generates revenues which can be rebated to households. Rebating the revenues from household sector carbon pricing on an equal-per-capita basis or recycling of revenues to those most affected economically can compensate inequitable impacts, which is expected to increase support for carbon mitigation. This paper addresses carbon pricing and the rebating of carbon pricing revenues from the perspective of their impacts on subjective well-being (SWB). Against the background of pertinent findings in well-being research the paper argues that the rebating of revenues from carbon pricing in the household sector may not be able to compensate the negative effects of carbon pricing on SWB. Referring to research on how energy affordability on the one hand and income on the other affect SWB, it is suggested that the net SWB effect of household sector carbon pricing and equal-per-capita rebating of revenues may be strictly negative. This is not only problematic per se, but all the more so because drops in SWB have been found to be strong predictors of populist voting, which poses a serious threat to carbon mitigation policy.

Keywords: carbon pricing; rebating; energy affordability; subjective well-being; populist voting (search for similar items in EconPapers)
Date: 2024-04, Revised 2024-04
New Economics Papers: this item is included in nep-ene, nep-env and nep-hap
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Published in Oldenburg Working Papers V-444-24

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