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

Farrell, Niall and Lyons, Seán (2014): The distributional impact of the Irish public service obligation levy on electricity consumption.

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Renewable Energy Support Schemes; Distributional Impact; Policy Cost
• Subjects: H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H22 - Incidence; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H23 - Externalities ; Redistributive Effects ; Environmental Taxes and Subsidies; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q42 - Alternative Energy Sources; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q58 - Government Policy

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