The distributional impact of the Irish public service obligation levy on electricity consumption

Niall Farrell and Sean Lyons

MPRA Paper from University Library of Munich, Germany

Abstract: We analyse the distributional impact of financing energy and environmental policies through additional charges on electricity consumption, focussing on the impact Ireland’s flat-rate Public Service Obligation (PSO) levy has on domestic consumers. Switching Ireland’s flate-rate charge to a unit-based charge results in reduced regressivity across the entire income distribution. A unit-based scheme reduces aggregate burden for most households on low incomes. Regressive impacts are greater for a subset of heavy electricity users. Incremental block pricing (IBP) exaggerates these effects. A hybrid fixed/variable structure mitigates regressivity for high users but lessens overall regressivity reduction. Redistribution via Ireland’s Household Benefits Package is sub-optimal relative to a hypothetical equivalised income-based scheme. Net of ‘merit order’ savings, flat charges redistribute burden incidence from rich to poor whilst fixed per-unit charges have a neutral effect. IBP shifts cost to heavy users, predominantly large households. IBP results in a negative net burden for the majority of households across all income groups.

Keywords: Renewable Energy Support Schemes; Distributional Impact; Policy Cost (search for similar items in EconPapers)
JEL-codes: H22 H23 Q42 Q5 Q58 (search for similar items in EconPapers)
Date: 2014-02-06
New Economics Papers: this item is included in nep-ene, nep-reg and nep-sog
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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