Chapter 5: The Distributional Effects of Direct Regulation: A Case Study of Energy Efficiency Appliance Standards
5. The distributive eﬀects of direct regulation: a case study of energy eﬃciency appliance standards Ronald J. Sutherland In short, the best way to understand any regulatory scheme is to answer the twin questions, who wins and who loses.1 1. INTRODUCTION Analyses of economic policy and economic regulation typically focus on eﬃciency implications, such as beneﬁts, costs and net beneﬁts. The rationale for this focus is that economic analysis contains a powerful set of optimisation tools designed speciﬁcally to analyse the eﬃciency of resource allocation. Distributional eﬀects are less often considered. This is not surprising since there is no commonly accepted deﬁnition of optimum equity; certainly nothing analogous to maximum net beneﬁts from economic eﬃciency. However, the distributional implications of environmental policies are now attracting signiﬁcant interest. One concern is the eﬀect of environmental quality (EQ) on households relative to their income level. A second issue is the impact of economic instruments on households relative to their income level. A large literature has appeared in the last decade that provides reasonably consistent evidence on each issue (see Kriström, Chapter 3, and Pearce, Chapter 2, in this volume). The literature indicates that quite frequently – but certainly not always – both the distribution of environmental quality and the costs of environmental policy are regressive. That is, higher-income households receive a proportionately larger share of the environmental beneﬁts and a lower share of the ﬁnancial costs of environmental policy....
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