Working Paper: NBER ID: w14241
Authors: Don Fullerton
Abstract: This chapter reviews literature on the distributional effects of environmental and energy policy. In particular, many effects of such policy are likely regressive. First, it raises the price of fossil-fuel-intensive products, expenditures on which are a high fraction of low-income budgets. Second, if abatement technologies are capital-intensive, then any mandate to abate pollution may induce firms to use more capital. If demand for capital is raised relative to labor, then a lower relative wage may also hurt low-income households. Third, pollution permits handed out to firms bestow scarcity rents on well-off individuals who own those firms. Fourth, low-income individuals may place more value on food and shelter than on incremental improvements in environmental quality. If high-income individuals get the most benefit of pollution abatement, then this effect is regressive as well. Fifth, low-income renters miss out on house price capitalization of air quality benefits. Well-off landlords may reap those gains. Sixth, transition effects could well hurt the unemployed who are already at some disadvantage. These six effects might all hurt the poor more than the rich. This paper discusses whether these fears are valid, and whether anything can be done about them.
Keywords: No keywords provided
JEL Codes: H22; Q48; Q52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Environmental policies (Q58) | Raise price of fossil-fuel-intensive products (Q31) |
| Raise price of fossil-fuel-intensive products (Q31) | Disproportionately affects low-income households (H31) |
| Abatement technologies are capital-intensive (Q52) | Firms substitute labor with capital (D24) |
| Firms substitute labor with capital (D24) | Lower relative wages for low-income households (J31) |
| Distribution of pollution permits (Q52) | Bestow scarcity rents on wealthier individuals (D61) |
| Low-income individuals value basic necessities more than environmental improvements (D11) | Regressive effect where high-income individuals benefit more from environmental policies (H23) |
| Low-income renters miss out on capitalized house price benefits (R21) | Wealthier landlords reap these gains (D33) |
| Transition effects of environmental policies (H23) | Disproportionately harm the unemployed (J68) |