Paper presented at the Conference “New economic concepts in the current European crises“.
Abstract: We analyse the distributional impact of financing renewable energy policies via levies on domestic consumption, focussing on Ireland’s flat-rate public service obligation (PSO) levy. We find that switching Ireland’s flate-rate charge to a unit-based regime results in a trend of reduced regressivity across the entire income distribution. A disproportionately large amount of high electricity users in the first income decile results in PSO burden increasing for these households. Incremental block-based levy structures exaggerate both effects. A hybrid fixed/variable tariff structure mitigates regressivity for high users but overall regressivity reduction is less. Social transfer schemes retain distributional benefits whilst minimising regressivity amongst high electricity users. We show that social transfer via Ireland’s Household Benefits Package is sub-optimal and an equivalised income-based measure is more effective in addressing regressivity amongst low earners. Net of ‘merit order’ savings, flat charges redistribute burden incidence from rich to poor whilst fixed per-unit charges have a neutral effect. Incremental unit-based charges shift total cost to heavy users, predominantly comprised of large households. This results in a negative net burden for the majority of households across all income groups.