Assessing the Impact of Environmental Policy on Consumption Behaviour, Greehouse Gas Emissions and Income Distribution

In recent decades, the environment as policy issue has risen dramatically in political and public discourse. Particularly the emission of GHG is a major concern. Generally, policies addressing GHG seek to adjust behavior by incorporating the external costs of pollution into the decision-making of private actors, explicitly establishing a price or making polluting behavior relatively more expensive. This however raises two concerns. First, it increases inequality through higher prices, disproportionally impacting those at the bottom of the income distribution and those living in rural areas. Second, consumption behavior may be driven by incentives other than price. This project utilizes microsimulation to investigate how impacts of environmental policies (EPs) and mitigation strategies differ across space and the income distribution by simulating changes in household consumption behavior, labor supply and disposable income. This allows us to analyze the environmental and distributional impact of EPs, investigating a potential equity-efficiency trade-off and identifying the winners and losers in Ireland and Luxembourg. This project extends the current literature to consider the effects of a wider range of EPs on spatial inequality at the national level and by considering behavioral drivers beyond price effects.