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OutlineMotivation and Previous literature
Data and MethodologyResults
Discussion
Would income redistribution result in higheraggregate emissions?
(”Income Inequality and Carbon Consumption:Evidence from Environmental Engel Curves”)
Lutz Sager([email protected])
PhD Student in Environmental EconomicsGrantham Research Institute — Department of Geography & Environment
London School of Economics and Political Science
27 April 2017
Lutz Sager ([email protected]) Would income redistribution result in higher aggregate emissions?
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OutlineMotivation and Previous literature
Data and MethodologyResults
Discussion
1 Motivation and Previous literature
2 Data and Methodology
3 ResultsIncome, consumption, technologyHousehold carbon inequalityQuantifying the ”equity-pollution” dilemmaPositional consumption (?)
4 Discussion
Lutz Sager ([email protected]) Would income redistribution result in higher aggregate emissions?
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OutlineMotivation and Previous literature
Data and MethodologyResults
Discussion
Motivation: Greenhouse gas emissions and climate change
Source: IPCC, 2014 (AR5)
Lutz Sager ([email protected]) Would income redistribution result in higher aggregate emissions?
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OutlineMotivation and Previous literature
Data and MethodologyResults
Discussion
Motivation: Greenhouse gas emissions and climate change
Global annual GHG emissions49Gt CO2e in 2010 (7t pp)
Limiting global warming to 2oC(relative to 1861-1880)..
..requires about 40-70 per centreduction in GHG emissions by2050.
about 2-3t per person
Source: IPCC, 2014 (AR5)
Lutz Sager ([email protected]) Would income redistribution result in higher aggregate emissions?
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OutlineMotivation and Previous literature
Data and MethodologyResults
Discussion
Motivation: Income inequality on the rise
Source: Atkinson et al., JEL 2011
Rising incomeinequality since1980s(Atkinson et al.,2011)
Rising wealthinequality since1980s (Saez &Zucman, 2016)
Global convergenceof living standards(Lakner & Milanovic,2016)
Lutz Sager ([email protected]) Would income redistribution result in higher aggregate emissions?
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OutlineMotivation and Previous literature
Data and MethodologyResults
Discussion
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 (?)
Lutz Sager ([email protected]) Would income redistribution result in higher aggregate emissions?
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OutlineMotivation and Previous literature
Data and MethodologyResults
Discussion
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
Lutz Sager ([email protected]) Would income redistribution result in higher aggregate emissions?
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OutlineMotivation and Previous literature
Data and MethodologyResults
Discussion
Motivation: The ”equity-pollution” dilemma
Existing literature: Income and carbon
Income is predictor for CO2 (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 ofexpenditure by poorer households, progressive redistribution mayresult in higher aggregate pollution from consumption.
Lutz Sager ([email protected]) Would income redistribution result in higher aggregate emissions?
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OutlineMotivation and Previous literature
Data and MethodologyResults
Discussion
Motivation: Research question(s)
Principal research question:
Will progressive income redistribution increase GHG emissionsembedded 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.?
Lutz Sager ([email protected]) Would income redistribution result in higher aggregate emissions?
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OutlineMotivation and Previous literature
Data and MethodologyResults
Discussion
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, 1967-2008)
Heerink et al. (2001): negative association(panel, 180 countries, 1961-2001)
Others; BUT problems of identification for causal inference
Lutz Sager ([email protected]) Would income redistribution result in higher aggregate emissions?
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OutlineMotivation and Previous literature
Data and MethodologyResults
Discussion
Previous literature: Inequality & carbon
Contribution of this draft:
Estimate household carbon in United States (1996-2009)
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
Lutz Sager ([email protected]) Would income redistribution result in higher aggregate emissions?
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OutlineMotivation and Previous literature
Data and MethodologyResults
Discussion
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 exercisesKey assumption: (Conditional) homogeneity of preferences
Lutz Sager ([email protected]) Would income redistribution result in higher aggregate emissions?
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OutlineMotivation and Previous literature
Data and MethodologyResults
Discussion
Methodology: From consumption to emissions
Lutz Sager ([email protected]) Would income redistribution result in higher aggregate emissions?
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OutlineMotivation and Previous literature
Data and MethodologyResults
Discussion
Consumer expenditure (CEX) - Data
Data source: U.S. Consumer Expenditure Survey (quarterly)(Bureau of Labor Statistics)
Population: U.S. Consumer Units (CU / Households)
Information: - Monthly expenditures (860 UCC) [MTBI]- CU Income & characteristics [FMLI]- Much more (potential use?)
Sample: 51,642 CU (1996 - 2009, yearly)[full information providers]
Lutz Sager ([email protected]) Would income redistribution result in higher aggregate emissions?
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OutlineMotivation and Previous literature
Data and MethodologyResults
Discussion
Emission factors (WIOD) - Data
Data source: World Input-Output Database
Population: 35 Industry sectors (US, 1996-2009) List
Information: - Input-output tables [IO]- CO2 emissions per sector [Env. Acc.]
Output: Emission intensity (kg CO2 per USD)
Methodology: Leontief(1970)
Lutz Sager ([email protected]) Would income redistribution result in higher aggregate emissions?
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OutlineMotivation and Previous literature
Data and MethodologyResults
Discussion
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. milesAvg. 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)
Lutz Sager ([email protected]) Would income redistribution result in higher aggregate emissions?
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OutlineMotivation and Previous literature
Data and MethodologyResults
Discussion
Final sample
Lutz Sager ([email protected]) Would income redistribution result in higher aggregate emissions?
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OutlineMotivation and Previous literature
Data and MethodologyResults
Discussion
Limitations
Limitations:
1 Product segments / quality
2 Trade (in progress)
3 Only CO2, not CH4/N2O (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.)
Lutz Sager ([email protected]) Would income redistribution result in higher aggregate emissions?
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OutlineMotivation and Previous literature
Data and MethodologyResults
Discussion
Income, consumption, technologyHousehold carbon inequalityQuantifying the ”equity-pollution” dilemmaPositional consumption (?)
Results: Non-parametric Engel curves
1 EECs areincreasing
2 EECs areconcave
3 EECs shift downover time
Lutz Sager ([email protected]) Would income redistribution result in higher aggregate emissions?
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OutlineMotivation and Previous literature
Data and MethodologyResults
Discussion
Income, consumption, technologyHousehold carbon inequalityQuantifying the ”equity-pollution” dilemmaPositional consumption (?)
Results: Non-parametric Engel curves
Lutz Sager ([email protected]) Would income redistribution result in higher aggregate emissions?
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OutlineMotivation and Previous literature
Data and MethodologyResults
Discussion
Income, consumption, technologyHousehold carbon inequalityQuantifying the ”equity-pollution” dilemmaPositional consumption (?)
Results: Technology, savings, composition
Detail
Lutz Sager ([email protected]) Would income redistribution result in higher aggregate emissions?
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OutlineMotivation and Previous literature
Data and MethodologyResults
Discussion
Income, consumption, technologyHousehold carbon inequalityQuantifying the ”equity-pollution” dilemmaPositional consumption (?)
Results: Parametric Engel curves
Further analyses require additional assumptions:
1 Inclusion of control variables
2 Specific functional form for EEC
3 Assume (conditional) homogeneity of preferences
Empirical specification:
yit = β1tmit + β2tm2it + x′itδt + εit (1)
Household carbon (yit); After tax income (mit); Controls (x′it)
Lutz Sager ([email protected]) Would income redistribution result in higher aggregate emissions?
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OutlineMotivation and Previous literature
Data and MethodologyResults
Discussion
Income, consumption, technologyHousehold carbon inequalityQuantifying the ”equity-pollution” dilemmaPositional consumption (?)
Results: Parametric Engel curves
Lutz Sager ([email protected]) Would income redistribution result in higher aggregate emissions?
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OutlineMotivation and Previous literature
Data and MethodologyResults
Discussion
Income, consumption, technologyHousehold carbon inequalityQuantifying the ”equity-pollution” dilemmaPositional consumption (?)
Results: Parametric Engel curves
Lutz Sager ([email protected]) Would income redistribution result in higher aggregate emissions?
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OutlineMotivation and Previous literature
Data and MethodologyResults
Discussion
Income, consumption, technologyHousehold carbon inequalityQuantifying the ”equity-pollution” dilemmaPositional consumption (?)
Results: Household carbon - Decomposition over time
Oaxaca-Blinder decomposition:
Increase of 10.9t inhousehold carbon between1996 (22.8t) and 2009(33.7t) [2009 technology]
Income (after tax)explains 3.4t (30 percent)
Expenditure explains 6.0t(55 per cent)
Other variables explain little
Lutz Sager ([email protected]) Would income redistribution result in higher aggregate emissions?
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OutlineMotivation and Previous literature
Data and MethodologyResults
Discussion
Income, consumption, technologyHousehold carbon inequalityQuantifying the ”equity-pollution” dilemmaPositional consumption (?)
Results: Households carbon inequality
Lutz Sager ([email protected]) Would income redistribution result in higher aggregate emissions?
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OutlineMotivation and Previous literature
Data and MethodologyResults
Discussion
Income, consumption, technologyHousehold carbon inequalityQuantifying the ”equity-pollution” dilemmaPositional consumption (?)
Results: Household carbon inequality - Decomposition
Factor decomposition:
Income explains30-41 per cent ofvariation in CO2
Family sizeexplains 11-13 percent
Other variablesexplain little
Large unexplainedvariation
Lutz Sager ([email protected]) Would income redistribution result in higher aggregate emissions?
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OutlineMotivation and Previous literature
Data and MethodologyResults
Discussion
Income, consumption, technologyHousehold carbon inequalityQuantifying the ”equity-pollution” dilemmaPositional consumption (?)
Results: Quantifying the ”equity-pollution” dilemma
Findings so far:
1 Environmental Engel curves
are upward-slopingare concaveshift down with time
2 Income appears to be main driver of household CO2
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 CO2?
Lutz Sager ([email protected]) Would income redistribution result in higher aggregate emissions?
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OutlineMotivation and Previous literature
Data and MethodologyResults
Discussion
Income, consumption, technologyHousehold carbon inequalityQuantifying the ”equity-pollution” dilemmaPositional consumption (?)
Results: Quantifying the ”equity-pollution” dilemma
Example (2009): β2 = −0.27, Ψ = 57.1 (k USD) Math
Marginal redistribution :
The expected effect of a marginal redistribution of 1000 USD froma higher income to a lower income household is an increase of30.8kg in household CO2. That constitutes about 6 per cent ofaverage CO2 per 1000 USD expenditure (514kg).
Full redistribution:
Average household carbon in 2009 is predicted to increase by 0.9tfrom 33.7t to about 34.6t under full income equality, a rise ofabout 2.7 per cent.
Lutz Sager ([email protected]) Would income redistribution result in higher aggregate emissions?
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OutlineMotivation and Previous literature
Data and MethodologyResults
Discussion
Income, consumption, technologyHousehold carbon inequalityQuantifying the ”equity-pollution” dilemmaPositional consumption (?)
Results: Positional consumption (?)
Lutz Sager ([email protected]) Would income redistribution result in higher aggregate emissions?
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OutlineMotivation and Previous literature
Data and MethodologyResults
Discussion
Discussion
Next steps:
1 Expand from 1996-2009 to 1996-2014 (WIOD)2 Improve measurement:
TradeCO2eRegional prices / emission-factors...
Future research:1 Motivations for consumption of specific goods
Status / positional consumptionEnvironmental awareness in consumption...
2 Wealth inequality and access to assets
Lutz Sager ([email protected]) Would income redistribution result in higher aggregate emissions?
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OutlineMotivation and Previous literature
Data and MethodologyResults
Discussion
Appendix: WIOD sectors
Lutz Sager ([email protected]) Would income redistribution result in higher aggregate emissions?
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OutlineMotivation and Previous literature
Data and MethodologyResults
Discussion
Appendix: WIOD sectors
Back to WIOD
Lutz Sager ([email protected]) Would income redistribution result in higher aggregate emissions?
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OutlineMotivation and Previous literature
Data and MethodologyResults
Discussion
Appendix: Direct emission factors
Lutz Sager ([email protected]) Would income redistribution result in higher aggregate emissions?
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OutlineMotivation and Previous literature
Data and MethodologyResults
Discussion
Appendix: Consumption categories
Lutz Sager ([email protected]) Would income redistribution result in higher aggregate emissions?
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OutlineMotivation and Previous literature
Data and MethodologyResults
Discussion
Appendix: Consumption categories
Lutz Sager ([email protected]) Would income redistribution result in higher aggregate emissions?
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OutlineMotivation and Previous literature
Data and MethodologyResults
Discussion
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]−1y = Ty (3)
Total emission-intensities (z) to total emission-intensities (z).
z = z′T (4)
Back to WIOD
Lutz Sager ([email protected]) Would income redistribution result in higher aggregate emissions?
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OutlineMotivation and Previous literature
Data and MethodologyResults
Discussion
Appendix: Technology, savings, composition
Back
Lutz Sager ([email protected]) Would income redistribution result in higher aggregate emissions?
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OutlineMotivation and Previous literature
Data and MethodologyResults
Discussion
Results: Quantifying the ”equity-pollution” dilemmaEstimated EEC: yit = β1tmit + β2tm
2it + x′itδt
Marginal change in consumption from income:∂yi∂mi
= β1 + 2β2mi
Marginal transfer from j to i :∂yi∂mi−
∂yj∂mj
= −2β2(mj − mi )
Expected effect of marginal transfer between two random households:
Eij(∂yi∂mi− ∂yj∂mj|mj > mi ) = −2β2Eij (mj −mi |mj > mi ) = −2β2Ψ(F (m))
Gini’s Mean Difference: Ψ(F (m)) =∫ ∫|y − z|dF (y)dF (z) or 1
N(N−1)
∑Ni=1
∑Nj=1 |mi − mj |, i 6= j
Difference in emissions when moving to ”full equality”:
β2
[m2 − 1
N
N∑i=1
m2i
]Back to Results
Lutz Sager ([email protected]) Would income redistribution result in higher aggregate emissions?
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OutlineMotivation and Previous literature
Data and MethodologyResults
Discussion
Appendix: Positional consumption (?)
Lutz Sager ([email protected]) Would income redistribution result in higher aggregate emissions?
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LSE Seminar series on Climate Change, Inequality and Social Policy27 April 2017
Would income redistribution result in higher aggregate emissions?Lutz Sager (Grantham Research Institute, LSE)
Discussants:
Ian GoughVisiting Professor CASE and Grantham Research Institute, LSE
Professor Angela DruckmanCentre for the Understanding of Sustainable Prosperity, University of Surrey
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Ian Gough:Heat, Greed and Human Need:
Climate change, capitalism and sustainable wellbeing
Edward Elgar, Forthcoming autumn 2017
Selected slides
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Categories of personal consumption by necessity and emission content, UK 2009
Source: Chitnis et al (2014): Tables 5, A.5
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Summary of eco‐social policies in Chapter 7
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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.
A Safe and Just Space for Humanity