Would income redistribution result in higher aggregate emissions?

Transcription

1 Would income redistribution result in higher aggregate emissions? ( Income Inequality and Carbon Consumption: Evidence from Environmental Engel Curves ) Lutz Sager (l.sager@lse.ac.uk) PhD Student in Environmental Economics Grantham Research Institute Department of Geography & Environment London School of Economics and Political Science 27 April 2017

2 1 2 3 Income, consumption, technology Household carbon inequality Quantifying the equity-pollution dilemma Positional consumption (?) 4

3 Motivation: Greenhouse gas emissions and climate change Source: IPCC, 2014 (AR5)

4 Motivation: Greenhouse gas emissions and climate change Global annual GHG emissions 49Gt CO 2 e in 2010 (7t pp) Limiting global warming to 2 o C (relative to )....requires about per cent reduction in GHG emissions by about 2-3t per person Source: IPCC, 2014 (AR5)

5 Motivation: Income inequality on the rise Source: Atkinson et al., JEL 2011 Rising income inequality since 1980s (Atkinson et al., 2011) Rising wealth inequality since 1980s (Saez & Zucman, 2016) Global convergence of living standards (Lakner & Milanovic, 2016)

6 Motivation: Distribution matters Distribution matters: Welfare & distributional justice (Rawls, 1971; Cowell, 2011) Social norms and cohesion (Wilkinson & Pickett, 2010) Economic development (Alesina & Perotti, 1996) Consumer behaviour (Stiglitz, 2008; Frank et al., 2014)... The environment (?)

7 Motivation: Distribution and the environment The environment as a source of inequalities: Climate change and food security in LDC s (Rosenweig & Parry, Nature 1994) Exposure and vulnerability to air pollution (Currie & Neidell, QJE 2005)... Inequalities as a source of environmental degradation

8 Motivation: The equity-pollution dilemma Existing literature: Income and carbon Income is predictor for CO 2 (e.g. Chancel & Piketty, 2015) BUT Income elasticity < 1 (e.g. Chakravarty et al., 2009) Necessities are carbon-intensive (Pearce, 1991) Regulation / taxation can be regressive (Gough, 2013) The equity-pollution dilemma: Given the higher pollution intensity of consumption per unit of expenditure by poorer households, progressive redistribution may result in higher aggregate pollution from consumption.

9 Motivation: Research question(s) Principal research question: Will progressive income redistribution increase GHG emissions embedded in household consumption? If yes, by how much? Subsidiary research questions: 1 How does consumption-based carbon vary with income? Budget constraint? Other correlated factors? 2 How has consumption-based carbon evolved over time? Contribution of technology? Income growth? Distribution? 3 Inequality of consumption-based carbon? Contribution of income, education, location, etc.?

10 Previous literature: Inequality & carbon Theory: How inequality may affect environmental outcomes Political Economy (Boyce, 1994) Consumer choice (Scruggs, 1998; Heerink et al., 2001) Evidence: Association between inequality and emissions Baek & Gweisah (2013): positive association (time-series, US, ) Heerink et al. (2001): negative association (panel, 180 countries, ) Others; BUT problems of identification for causal inference

11 Previous literature: Inequality & carbon Contribution of this draft: Estimate household carbon in United States ( ) First to quantify the equity-pollution dilemma Decompose evolution of household carbon (1996 vs. 2009) Decompose household carbon inequality (2009) Using concept of Environmental Engel curves (EEC) introduced by Levinson & O Brien (NBER, 2015) Assess link between carbon intensity and visibility of goods

12 Methodology: (Environmental) Engel curves EEC for air pollution (Levinson & O Brien, NBER 2015) Household-level Kuznets curve (Kahn, 1998) Allows for a number of analytical exercises Key assumption: (Conditional) homogeneity of preferences

13 Methodology: From consumption to emissions

14 Consumer expenditure (CEX) - Data Data source: Population: Information: Sample: U.S. Consumer Expenditure Survey (quarterly) (Bureau of Labor Statistics) U.S. Consumer Units (CU / Households) - Monthly expenditures (860 UCC) [MTBI] - CU Income & characteristics [FMLI] - Much more (potential use?) 51,642 CU ( , yearly) [full information providers]

15 Emission factors (WIOD) - Data Data source: Population: Information: Output: Methodology: World Input-Output Database 35 Industry sectors (US, ) List - Input-output tables [IO] - CO 2 emissions per sector [Env. Acc.] Emission intensity (kg CO 2 per USD) Leontief(1970)

16 Emission factors (Direct) Yearly avg. prices [U.S. EIA]: 1 Gasoline (retail) 2 Heating oil (residential) 3 Gas (residential) 4 Electricity (residential) Air travel [U.S. BTS]: Avg. fuel use Avg. pass. miles x Avg. pass. miles Avg. air fare Emission factors [U.S. EPA]: 1 Gasoline 2 Heating oil/diesel 3 Propane gas 4 Kerosene-type jet-fuel Electricity [U.S. EPA egrid]: Total CO2 emissions (kg) Total energy output (kwh)

17 Final sample Outline

18 Limitations Outline Limitations: 1 Product segments / quality 2 Trade (in progress) 3 Only CO 2, not CH 4 /N 2 O (agriculture, waste disposal..) 4 CEX Survey: Sampling (tails), reporting bias, etc. 5 Sample: Full-information reporters only 6 Matching: 641 UCC codes to 34 WIOD sectors 7 Coverage: Deductions (e.g. medicine), debt / mortgage, etc. 8 Regional heterogeneity (electricity grid, rural/urban, etc.)

19 : Non-parametric Engel curves Income, consumption, technology Household carbon inequality Quantifying the equity-pollution dilemma Positional consumption (?) 1 EECs are increasing 2 EECs are concave 3 EECs shift down over time

20 : Non-parametric Engel curves Income, consumption, technology Household carbon inequality Quantifying the equity-pollution dilemma Positional consumption (?)

21 Income, consumption, technology Household carbon inequality Quantifying the equity-pollution dilemma Positional consumption (?) : Technology, savings, composition Detail

22 : Parametric Engel curves Income, consumption, technology Household carbon inequality Quantifying the equity-pollution dilemma Positional consumption (?) Further analyses require additional assumptions: 1 Inclusion of control variables 2 Specific functional form for EEC 3 Assume (conditional) homogeneity of preferences Empirical specification: y it = β 1t m it + β 2t m 2 it + x it δ t + ɛ it (1) Household carbon (y it ); After tax income (m it ); Controls (x it )

23 : Parametric Engel curves Income, consumption, technology Household carbon inequality Quantifying the equity-pollution dilemma Positional consumption (?)

24 : Parametric Engel curves Income, consumption, technology Household carbon inequality Quantifying the equity-pollution dilemma Positional consumption (?)

25 Income, consumption, technology Household carbon inequality Quantifying the equity-pollution dilemma Positional consumption (?) : Household carbon - Decomposition over time Oaxaca-Blinder decomposition: Increase of 10.9t in household carbon between 1996 (22.8t) and 2009 (33.7t) [2009 technology] Income (after tax) explains 3.4t (30 per cent) Expenditure explains 6.0t (55 per cent) Other variables explain little

26 : Households carbon inequality Income, consumption, technology Household carbon inequality Quantifying the equity-pollution dilemma Positional consumption (?)

27 Income, consumption, technology Household carbon inequality Quantifying the equity-pollution dilemma Positional consumption (?) : Household carbon inequality - Decomposition Factor decomposition: Income explains per cent of variation in CO 2 Family size explains per cent Other variables explain little Large unexplained variation

28 Income, consumption, technology Household carbon inequality Quantifying the equity-pollution dilemma Positional consumption (?) : Quantifying the equity-pollution dilemma Findings so far: 1 Environmental Engel curves are upward-sloping are concave shift down with time 2 Income appears to be main driver of household CO 2 Across time (alongside technology) Within time 3 Other household characteristics explain little 4 Large unexplained variation remains So, by how much would income redistribution increase CO 2?

29 Income, consumption, technology Household carbon inequality Quantifying the equity-pollution dilemma Positional consumption (?) : Quantifying the equity-pollution dilemma Example (2009): ˆβ 2 = 0.27, Ψ = 57.1 (k USD) Math Marginal redistribution : The expected effect of a marginal redistribution of 1000 USD from a higher income to a lower income household is an increase of 30.8kg in household CO 2. That constitutes about 6 per cent of average CO 2 per 1000 USD expenditure (514kg). Full redistribution: Average household carbon in 2009 is predicted to increase by 0.9t from 33.7t to about 34.6t under full income equality, a rise of about 2.7 per cent.

30 : Positional consumption (?) Income, consumption, technology Household carbon inequality Quantifying the equity-pollution dilemma Positional consumption (?)

31 Outline Next steps: 1 Expand from to (WIOD) 2 Improve measurement: Trade CO2e Regional prices / emission-factors... Future research: 1 Motivations for consumption of specific goods Status / positional consumption Environmental awareness in consumption... 2 Wealth inequality and access to assets

32 Appendix: WIOD sectors

33 Appendix: WIOD sectors Back to WIOD

34 Appendix: Direct emission factors

35 Appendix: Consumption categories

36 Appendix: Consumption categories

37 Appendix: Emission factors (WIOD) - Methodology Methodology as proposed by Leontief (1970) Output of n sectors (x); intermediate (Cx) and consumed (y). x = Cx + y (2) Direct Requirement matrix (C) to Total Requirement matrix (T). x = [I C] 1 y = Ty (3) Total emission-intensities (z) to total emission-intensities ( z). z = z T (4) Back to WIOD

38 Appendix: Technology, savings, composition Back

39 : Quantifying the equity-pollution dilemma Estimated EEC: Marginal change in consumption from income: Marginal transfer from j to i: ŷ it = ˆβ 1t m it + ˆβ 2t m 2 it + x it ˆδ t ŷ i = ˆβ m ˆβ 2 m i i ŷ i ŷ j = 2 ˆβ m i m 2 (m j m i ) j Expected effect of marginal transfer between two random households: E ij ( y i m i y j m j m j > m i ) = 2 ˆβ 2 E ij (m j m i m j > m i ) = 2 ˆβ 2 Ψ(F (m)) Gini s Mean Difference: Ψ(F (m)) = y z df (y)df (z) or 1 Ni=1 Nj=1 m N(N 1) i m j, i j Difference in emissions when moving to full equality : [ ] ˆβ 2 m 2 1 N mi 2 N i=1 Back to

40 Appendix: Positional consumption (?)

41 LSE Seminar series on Climate Change, Inequality and Social Policy 27 April 2017 Would income redistribution result in higher aggregate emissions? Lutz Sager (Grantham Research Institute, LSE) Discussants: Ian Gough Visiting Professor CASE and Grantham Research Institute, LSE Professor Angela Druckman Centre for the Understanding of Sustainable Prosperity, University of Surrey

42 Ian Gough: Heat, Greed and Human Need: Climate change, capitalism and sustainable wellbeing Edward Elgar, Forthcoming autumn 2017 Selected slides

43 Categories of personal consumption by necessity and emission content, UK 2009 Source: Chitnis et al (2014): Tables 5, A.5

44 Summary of eco social policies in Chapter 7

45 A Safe and Just Space for Humanity Raworth, K. (2012) 'A safe and just space for humanity: can we live within the doughnut', Oxfam Policy and Practice: Climate Change and Resilience, 8(1), 1-26.