The Equity and Efficiency Effects of Electricity Network Tariff Reform: Evidence From Ireland

We estimate the welfare implications of reforming residential electricity network tariffs to incorporate cost-reflective “Coasian†principles. For an Irish case study, we find that current Distribution Use of System (DUoS) tariffs deviate considerably from those that incorporate cost-reflective principles. In aggregate, positive welfare effects are largely canceled out by negative welfare effects. This results in a relatively small net welfare impact of up to around €33 million. However, there is a regressive distribution of incidence at the household level. Households in the lowest income decile incur losses of up to around €40 per annum, on average, while households in the highest income decile benefit by up to €63 per annum, on average. We show that inefficient DUoS tariffs represent a costly redistribution policy. We demonstrate that it is more efficient to counter the regressive effects through the tax-benefit system. JEL Classification: L94, L98, Q42, Q48, Q51, Q53, Q54, Q55