Investigating the Distributional Effect of the UK Carbon Price Floor

Abstract

This paper empirically investigates the distributional effects of the UK carbon price floor (CPF) on households’ electricity expenditure. I employ the difference-in-differences model to analyse the impact of the carbon price floor on vertical inequality. The main result finds that households in the poorest quintile are most impacted by the electricity price increase. I further explore the heterogenous effect on households within the bottom quintile by considering various household characteristics. This paper contributes to the existing literature on carbon pricing policies, in particular their impact on inequality both across income groups and within households in the poorest quintile.