Efficiency and Equity Impacts of Energy Subsidies / Robert W. Hahn, Robert D. Metcalfe.

Format:

Book

Author/Creator:

Hahn, Robert W.

Contributor:

National Bureau of Economic Research.

Metcalfe, Robert D.

Series:

Working Paper Series (National Bureau of Economic Research) no. w28371.

NBER working paper series no. w28371

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2021.

Summary:

Economic theory suggests that energy subsidies can lead to excessive consumption and environmental degradation. However, the precise impact of energy subsidies is not well understood. We analyze a large energy subsidy: the California Alternate Rates for Energy (CARE). CARE provides a price reduction for low-income consumers of natural gas and electricity. Using a natural field experiment, we estimate the price elasticity of demand for natural gas to be about -0.35 for CARE customers. An economic model of this subsidy yields three results. First, the natural gas subsidy appears to reduce welfare. Second, the economic impact of various policies, such as cap-and-trade, depends on whether prices for various customers move closer to the marginal social cost. Third, benefits to CARE customers need to increase by 6% to offset the costs of the program.

Notes:

Print version record

January 2021.