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Cheaper, Greener and More Efficient: Rationalising UK Carbon Prices
Author(s) -
Advani Arun,
Stoye George
Publication year - 2017
Publication title -
fiscal studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.63
H-Index - 40
eISSN - 1475-5890
pISSN - 0143-5671
DOI - 10.1111/1475-5890.12097
Subject(s) - inefficiency , economics , electricity , incentive , revenue , greenhouse gas , carbon price , natural resource economics , carbon fibers , environmental economics , microeconomics , finance , ecology , materials science , composite number , electrical engineering , composite material , biology , engineering
Current UK energy use policies, which primarily aim to reduce carbon emissions, provide abatement incentives that vary by user and fuel, creating inefficiency. Distributional concerns are often given as a justification for the lower carbon price faced by households, but there is little rationale for carbon prices associated with the use of gas to be lower than those for electricity. We consider reforms that raise carbon prices faced by households and reduce the variation in carbon prices across gas and electricity use, improving the efficiency of emissions reduction. We show that the revenue raised from these reforms can be recycled in a way that ameliorates some of the distributional concerns. Whilst such recycling is not able to protect all poorer households, existing policy also makes distributional trade‐offs, but does so in an opaque and inefficient way.