Abstract

The distributional consequences of environmental policies are a major issue for the public acceptability of energy transitions, as the Yellow-vest demonstrations highlighted. Our objective is to assess the short and mid-term distributional impacts of policy packages on firms and households – rather than of single policy instruments - including carbon taxing, technology adoption subsidies and compensating lump-sum transfers. We offer insights on the fair transition promoted by the EU Fit-for-55 proposal with a case-study on two successive versions of the French low-carbon strategy.To that end, we develop an innovative numerical method that combines micro-simulation and macroeconomic modelling techniques. We explicitly model the heterogeneity of households’ behaviour and the role of the distribution of energy-efficient durable technologies — electric vehicles, energy-efficient housing — among consumers. Focusing technology adoptions on the largest energy consumers to maximise emission reductions reduces the discrepancy of impacts between rural and urban households. However, it aggravates the regressivity of carbon taxation if households are not rebated their carbon tax payments. Recycling schemes favouring poorer households are powerful means to offset the regressivity of carbon taxation in the short term. In parallel, policies supporting electric vehicles and thermal renovation are effective in reducing households’ tax payments at further horizons.