Equity Implications of Net-Zero Emissions: A Multi-Model Analysis of Energy Expenditures Across Income Classes Under Economy-Wide Deep Decarbonization Policies

TL;DR

This study analyzes how net-zero emissions policies impact household energy costs across income groups in the US, revealing that policy design significantly influences distributional outcomes and that revenue recycling can mitigate burdens on lower-income households.

Contribution

It introduces a novel linking approach connecting energy system models with microdata to assess distributional effects of net-zero policies across income classes.

Findings

Energy expenditures are likely to decline for many households under net-zero policies.

Distributional impacts vary based on policy design and revenue use.

Recycling policy revenues can offset higher energy burdens for low-income households.

Abstract

With companies, states, and countries targeting net-zero emissions around midcentury, there are questions about how these targets alter household welfare and finances, including distributional effects across income groups. This paper examines the distributional dimensions of technology transitions and net-zero policies with a focus on welfare impacts across household incomes. The analysis uses a model intercomparison with a range of energy-economy models using harmonized policy scenarios reaching economy-wide, net-zero CO2 emissions across the United States in 2050. We employ a novel linking approach that connects output from detailed energy system models with survey microdata on energy expenditures across income classes to provide distributional analysis of net-zero policies. Although there are differences in model structure and input assumptions, we find broad agreement in qualitative trends in policy incidence and energy burdens across income groups. Models generally agree that direct energy expenditures for many households will likely decline over time with reference and net-zero policies. However, there is variation in the extent of changes relative to current levels, energy burdens relative to reference levels, and electricity expenditures. Policy design, primarily how climate policy revenues are used, has first-order impacts on distributional outcomes. Net-zero policy costs, in both absolute and relative terms, are unevenly distributed across households, and relative increases in energy expenditures are higher for lowest-income households. However, we also find that recycled revenues from climate policies have countervailing effects when rebated on a per-capita basis, offsetting higher energy burdens and potentially even leading to net progressive outcomes.