Households’ Energy Demand and Carbon Taxation in Italy

Abstract

AbstractSince the second half of 2021, Italian households have experienced a significant increase in energy prices. Nonetheless the relevance of this issue, information on energy use and how quantity reacts to price increases is still scant and with a very limited level of disaggregation. We propose a novel methodology to estimate the demand and elasticity of electricity, heating and private transport fuels by aligning the microdata of the Italian Household Budget Survey with several external sources. These estimates can be used to assess how energy expenditure weighs on vulnerable households and the effects of a carbon tax. A carbon tax would—as expected—raise significant revenues and curb CO2 emissions but it could also have sizable regressive effects. In order to limit these undesired effects and to increase social consensus, policymakers should devise a set of suitable revenue recycling strategies.