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The distributional impact of the Irish public service obligation levy on electricity consumption

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  • Farrell, Niall
  • Lyons, Seán

Abstract

We analyse the distributional impact of financing energy and environmental policies through additional charges on electricity consumption, focussing on the impact Ireland’s flat-rate Public Service Obligation (PSO) levy has on domestic consumers. Switching Ireland’s flate-rate charge to a unit-based charge results in reduced regressivity across the entire income distribution. A unit-based scheme reduces aggregate burden for most households on low incomes. Regressive impacts are greater for a subset of heavy electricity users. Incremental block pricing (IBP) exaggerates these effects. A hybrid fixed/variable structure mitigates regressivity for high users but lessens overall regressivity reduction. Redistribution via Ireland’s Household Benefits Package is sub-optimal relative to a hypothetical equivalised income-based scheme. Net of ‘merit order’ savings, flat charges redistribute burden incidence from rich to poor whilst fixed per-unit charges have a neutral effect. IBP shifts cost to heavy users, predominantly large households. IBP results in a negative net burden for the majority of households across all income groups.

Suggested Citation

  • Farrell, Niall & Lyons, Seán, 2014. "The distributional impact of the Irish public service obligation levy on electricity consumption," MPRA Paper 53488, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:53488
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    File URL: https://mpra.ub.uni-muenchen.de/53488/1/MPRA_paper_53488.pdf
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    References listed on IDEAS

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    1. Karsten Neuhoff & Stefan Bach & Jochen Diekmann & Martin Beznoska & Tarik El-Laboudy, 2013. "Distributional Effects of Energy Transition: Impacts of Renewable Electricity Support in Germany," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 1).
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    4. Mallika Chawla & Michael G. Pollitt, 2013. "Energy-efficiency and Environmental Policies & Income Supplements in the UK: Evolution and Distributional Impacts on Domestic Energy Bills," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 1).
    5. Conor Devitt & Laura Malaguzzi Valeri, 2011. "The Effect of REFIT on Irish Wholesale Electricity Prices," The Economic and Social Review, Economic and Social Studies, vol. 42(3), pages 343-369.
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    Cited by:

    1. Verde, Stefano F. & Pazienza, Maria Grazia, 2016. "Energy and climate hand-in-hand: Financing RES-E support with carbon revenues," Energy Policy, Elsevier, vol. 88(C), pages 234-244.
    2. Curtis, John & Devitt, Niamh & di Cosmo, Valeria & Farrell, Niall & FitzGerald, John & Hyland, Marie & Lynch, Muireann & Lyons, Sean & McCoy, Daire & Malaguzzi Valeri, Laura & Walsh, Darragh, 2014. "Irish Energy Policy: An Analysis of Current Issues," Research Series, Economic and Social Research Institute (ESRI), number rs37 edited by FitzGerald, John & Malaguzzi Valeri, Laura.
    3. Niall Farrell, 2014. "Chapter 06: Wind Energy in Ireland," Chapters from Rural Economic Development in Ireland, in: Rural Economic Development in Ireland, edition 1, chapter 6, Rural Economy and Development Programme,Teagasc.

    More about this item

    Keywords

    Renewable Energy Support Schemes; Distributional Impact; Policy Cost;

    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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