No. 614 - Households' energy demand and the effects of carbon pricing in Italy

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by Ivan Faiella and Luciano LavecchiaApril 2021

This paper proposes a novel methodology to estimate the demand and elasticity of electricity, heating, and private transport fuels of Italian households. We enrich the microdata of the Italian Household Budget Survey with several external sources. These estimates are used to evaluate the effects of a set of one-off carbon taxes on energy demand and expenditure.

According to our simulations, the increase in energy prices prompted by carbon would decrease energy demand for all uses considered. Our simulations suggest that the effects of carbon taxation are generally regressive: expenditure would increase more for poorer households while their energy demand would be compressed. The carbon tax could achieve a significant decrease in GHG emissions and raise revenues, which could be recycled to compensate vulnerable households or reinvested to support the energy transition

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