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The Distributional Effects of Environmental Policy

Edited by Ysé Serret and Nick Johnstone

This publication is a milestone in the analysis of the distributional impacts of environmental policy, building upon existing literature to simultaneously examine disparities in the distribution of environmental impacts and in the distribution of financial effects amongst households.
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Chapter 5: The Distributional Effects of Direct Regulation: A Case Study of Energy Efficiency Appliance Standards

Ronald J. Sutherland


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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