Distributional Consequences of Climate Change Impacts on Energy Demand across Italian Households

The paper evaluates the distributional implications of climate-induced temperature changes on energy demand and energy poverty in Italy. We use two different simulation approaches that make it possible to analyze to what extent general equilibrium substitution and income effects moderate or amplify the first-order changes induced by climate change. Climate change impacts are regressive. While rich households reduce expenditure on heating fuels more than the poor, less affluent households increase electricity expenditure relatively more. For a given income level, whether households increase or decrease energy expenditure depends on the size of the shock, the existing climate conditions, and the energy sources used. The increase in electricity poor households highlights a new emerging risk related to those households who will be exposed to higher temperatures and will not being able to purchase the cooling services needed to protect themselves because of credit, institutional, infrastructural constraints. We shed new light on the importance of accounting for the distributional consequences of climate change impacts when designing climate policies.