Estimating welfare aspects of changes in energy prices from preference heterogeneity
The European Union's energy and climate policy package is expected to cause an increase in end-user prices of electricity and fuels. This paper assesses the distributional effects of these price increases in Cyprus by specifying and estimating a consumer demand system with price heterogeneity between households. This novel method allows obtaining robust parameter estimates even when household expenditure surveys are limited, as is the case in many European countries. The empirical analysis is conducted both conditional on energy-related household characteristics and unconditionally. We then use the estimated demand system to conduct welfare analysis. We find that the rise in energy prices results in welfare losses of EUR 101 per household (in 2009 prices) in year 2020, or a nationwide welfare loss of more than EUR'2009 33 million. Price increases will be regressive and will affect small and urban households more strongly than the rest of the population. Furthermore, we find that the largest proportion of welfare loss is due to loss of household's income purchasing power caused by higher energy prices, while the changes in relative prices induce deadweight loss which is a small part of welfare loss because of the limited substitutability of energy with other goods.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Xavier Labandeira & José M. Labeaga & Miguel Rodríguez, "undated".
"A Residential Energy Demand System for Spain,"
- Xavier Labandeira & José M. Labeaga & Miguel Rodríguez, 2005. "A Residential Energy Demand System for Spain," Working Papers 0501, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
- Xavier Labandeira & José M. Labeaga & Miguel Rodríguez, 2005. "A Residential Energy Demand System for Spain," Econometrics 0503005, EconWPA.
- Don Fullerton, 2010.
"Six Distributional Effects of Environmental Policy,"
CESifo Working Paper Series
3299, CESifo Group Munich.
- Don Fullerton, 2011. "Six Distributional Effects of Environmental Policy," NBER Working Papers 16703, National Bureau of Economic Research, Inc.
- Brännlund, Runar & Nordström, Jonas, 1999.
"Carbon Tax Simulations Using a Household Demand Model,"
Umeå Economic Studies
508, Umeå University, Department of Economics.
- Brannlund, Runar & Nordstrom, Jonas, 2004. "Carbon tax simulations using a household demand model," European Economic Review, Elsevier, vol. 48(1), pages 211-233, February.
- Capros, Pantelis & Mantzos, Leonidas & Parousos, Leonidas & Tasios, Nikolaos & Klaassen, Ger & Van Ierland, Tom, 2011. "Analysis of the EU policy package on climate change and renewables," Energy Policy, Elsevier, vol. 39(3), pages 1476-1485, March.
- Vincenzo Atella & Martina Menon & Federico Perali, 2003. "Estimation of Unit Values in Cross Sections without Quantity Information and Implications for Demand and Welfare Analysis," CEIS Research Paper 12, Tor Vergata University, CEIS.
- Andrew M. Jones & José M. Labeaga, 2003. "Individual heterogeneity and censoring in panel data estimates of tobacco expenditure," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(2), pages 157-177.
- Kerkhof, Annemarie C. & Moll, Henri C. & Drissen, Eric & Wilting, Harry C., 2008. "Taxation of multiple greenhouse gases and the effects on income distribution: A case study of the Netherlands," Ecological Economics, Elsevier, vol. 67(2), pages 318-326, September.
- Lewbel, Arthur, 1989. "Household equivalence scales and welfare comparisons," Journal of Public Economics, Elsevier, vol. 39(3), pages 377-391, August.
- Blundell, Richard & Pashardes, Panos & Weber, Guglielmo, 1993. "What Do We Learn About Consumer Demand Patterns from Micro Data?," American Economic Review, American Economic Association, vol. 83(3), pages 570-597, June.
- Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-1054, July.
- James Banks & Richard Blundell & Arthur Lewbel, 1997. "Quadratic Engel Curves And Consumer Demand," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 527-539, November.
- Simon Dresner & Paul Ekins, 2006. "Economic instruments to improve UK home energy efficiency without negative social impacts," Fiscal Studies, Institute for Fiscal Studies, vol. 27(1), pages 47-74, March.
- Tim Callan & Sean Lyons & Sue Scott & Richard S. J. Tol & Stefano Verde, 2008.
"The Distributional Implications of a Carbon Tax in Ireland,"
WP250, Economic and Social Research Institute (ESRI).
- Callan, Tim & Lyons, Sean & Scott, Susan & Tol, Richard S.J. & Verde, Stefano, 2009. "The distributional implications of a carbon tax in Ireland," Energy Policy, Elsevier, vol. 37(2), pages 407-412, February.
- Caves, Douglas W & Christensen, Laurits R & Diewert, W Erwin, 1982. "The Economic Theory of Index Numbers and the Measurement of Input, Output, and Productivity," Econometrica, Econometric Society, vol. 50(6), pages 1393-1414, November.
- Böhringer, Christoph & Rutherford, Thomas F. & Tol, Richard S. J., 2009. "The EU 20/20/2020 Targets: An Overview of the EMF22 Assessment," Papers WP325, Economic and Social Research Institute (ESRI).
- Lyssiotou, Panayiota & Pashardes, Panos & Stengos, Thanasis, 2002.
"Nesting quadratic logarithmic demand systems,"
Elsevier, vol. 76(3), pages 369-374, August.
- Tiezzi, Silvia, 2005. "The welfare effects and the distributive impact of carbon taxation on Italian households," Energy Policy, Elsevier, vol. 33(12), pages 1597-1612, August.
- Speck, Stefan, 1999. "Energy and carbon taxes and their distributional implications," Energy Policy, Elsevier, vol. 27(11), pages 659-667, October.
- Pashardes, Panos, 1995. "Equivalence scales in a rank-3 demand system," Journal of Public Economics, Elsevier, vol. 58(1), pages 143-158, September.
- Arthur Lewbel, 1989. "Identification and Estimation of Equivalence Scales under Weak Separability," Review of Economic Studies, Oxford University Press, vol. 56(2), pages 311-316.
- Lewbel, Arthur, 1990. "Full Rank Demand Systems," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(2), pages 289-300, May.
- Wier, Mette & Birr-Pedersen, Katja & Jacobsen, Henrik Klinge & Klok, Jacob, 2005. "Are CO2 taxes regressive? Evidence from the Danish experience," Ecological Economics, Elsevier, vol. 52(2), pages 239-251, January.
When requesting a correction, please mention this item's handle: RePEc:eee:eneeco:v:42:y:2014:i:c:p:58-66. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.