Horizontal Equity Effects in Energy Regulation

44 Pages Posted: 20 Nov 2017 Last revised: 2 Sep 2022

See all articles by Carolyn Fischer

Carolyn Fischer

Resources for the Future; Vrije Universiteit Amsterdam; University of Ottawa - Department of Economics

William A. Pizer

Duke University

Date Written: November 2017

Abstract

Choices in energy regulation, particularly whether and how to price externalities, can have widely different distributional consequences both across and within income groups. Traditional welfare theory focuses largely on effects across income groups; such “vertical equity” concerns can typically be addressed by a progressive redistribution of emissions revenues. In this paper, we review alternative economic perspectives that give rise to equity concerns within income groups, or “horizontal equity,” and suggest operational measures. We then apply those measures to a stylized model of pollution regulation in the electricity sector. In addition, we look for ways to present the information behind those measures directly to stakeholders. We show how horizontal equity concerns might overshadow efficiency concerns in this context.

Suggested Citation

Fischer, Carolyn and Fischer, Carolyn and Pizer, William A., Horizontal Equity Effects in Energy Regulation (November 2017). NBER Working Paper No. w24033, Available at SSRN: https://ssrn.com/abstract=3074211

Carolyn Fischer (Contact Author)

Resources for the Future ( email )

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Vrije Universiteit Amsterdam ( email )

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University of Ottawa - Department of Economics ( email )

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William A. Pizer

Duke University ( email )

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