Distributional Effects of Environmental Policies

Distributional Effects of Environmental Policies

A key goal of environmental policy is to ensure sustainable choices and investment. For the individual, revising choices and behavior might be necessary to avoid costs or obtain benefits introduced by policies. Though a growing literature has investigated how different environmental policies produce winners and losers through differences in costs and benefits between individuals, less is known about the causes of varying adaption to new policies. In the context of environmental policy, there are no studies of how the "hand of the past" determines the ability to adapt through choices that are not easily reversed, such as location, and exposure to wealth effects from revaluation through existing endowments at the individual or firm level. The goal of DEEP is to provide new knowledge of how existing differences interact with environmental policies in shaping choices, with consequences for policy effectiveness and the evolution of disparities among households and firms. The key to achieve this is the construction of novel and exceptionally ambitious models of decisions that affect outcomes over time, combined with data of unparalleled detail on choices, outcomes, income and assets of individuals, households and firms in settings featuring rich and highly relevant policy interventions. The results will contribute both to our understanding of how inequality develops under policy choices in interaction with preexisting disparities, and our understanding of the trade-offs between equity and effectiveness when designing policies. The project will center on two strategically important areas: 1) electrification of transportation, where existing vehicle, location and wealth of households influence policy impact, with implications for wealth and welfare over time; and 2) renewable energy subsidies, where existing capacities of firms influence policy impact on investments and capacity decisions, with implications for the evolution of market structure and market power.