COMPLETED ESSAY FINAL.

POLICY BRIEF
1
INTRODUCTION
The low carbon transition plan1 (LCTP) sets government policy to meet renewable
energy and carbon-related targets. The report outlines how policy costs are
distributed.
LCTP:A “TRIPLE INJUSTICE” FOR THE POOR
I. Heavier Burden
Climate change policy costs are borne
predominately by consumers.
Corporations enjoy autonomy over
where costs are recovered,
emphasising commercial
considerations, whilst ignoring wider
equitable issues of distribution.
1 HM Government, (2009). The UK Low Carbon Transition Plan. National strategy for climate and
energy.
2
Preston, I., White, V., and Guertler P, (2010) Distributional Impacts of Climate Change Policies, Final
Report to EAGA Charitable Trust at p.8
Costs are passed on uniformly to
consumers, regardless of income.
The highest income households
experience a 0.2% increase in energy
costs as a proportion of income, whilst
the lowest income households
experience a 2.1% change. 2
EXECUTIVE SUMMARY
 Costs of climate change policy are distributed
regressively
 Recovering costs through income tax or a
financial transaction tax is progressive, but not
politically viable.
 A rising block tariff, implemented in tandem with
relief for low income “priority groups”, is the best
alternative to mitigate regressive impacts.
 The rising block tariff promotes climate change
policy goals, by incentivising energy
conservation
 Fuel poverty could increase under a rising block
tariff, whilst still making low income homes
better off.

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Lower income households bear the
heaviest burden as a percentage of
their income.
II. Least Responsible
Wealthier households emit more, both
directly and indirectly, comparative to
poorer. The graph below shows the
surge in emissions per person as
income increases.3 The wealthiest
individuals pollute three times more
comparative to the poorest
III. Less Likely to Benefit
Under LCTP, 1 in 5 of households are
“winners”, seeing a reduction in their
energy bills.
3 Gough I et al. The distribution of total
greenhouse gas emissions by households in
the UK, and some implications for social
The main characteristics of “winners”
are:
 100% received insulation +
 A Power or Heat technology4
However, for power technologies, only
5% of low income households
benefited from the measure.
Consequently, low income
households are significantly less
likely to see falling bills.
CURRENT POLICY
CONCLUSION
The current situation is an inequitable
way for dealing with carbon reduction.
Poorer households carry the heaviest
burden, although being least culpable
for emissions, and least likely to
benefit.
POLICY RESPONSE
I. Costs Recovery through
Income Taxation
policy. London, Centre for Analysis of Social
Exclusion, 2011
4 Ibid at p.60

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Progressive
The lowest income households will see
an increase in disposable income of
£96, whilst the richest would carry the
heaviest burden, and see a decrease
of £1378.5 Therefore, it is progressive
as the richest pay more.
Politics
The U.K. is currently reducing a large
structural deficit. Therefore, using
income taxation to pay for climate
change policy may face political
opposition.
II. Rising Block Tariff “RBT”
The RBT forces energy companies to
change their pricing plans, so that the
first block of energy, which is essential
for civilised existence, does not
embrace any policy costs. This block is
sold at a cheaper rate. Thereafter, for
additional energy, which is optional, a
higher price will be charged.
5 Preston, I., White, V., and Guertler P,(2010)
Distributional Impacts of Climate Change
Policies, Final Report to EAGA Charitable
Trust at p.56
6 Gardner, Richard L.,and Robert A. Young.
(1984b] Effects of Alternative Energy Rates
And Rate Structures On Electricity and Water
This is a purely regulatory measure,
administratively feasible, with low
impact on public funds.
Promotes Consumptive Frugality
The current prevailing energy tariffs
have decreasing prices with
consumption. This approach does not
incentivise consumers to conserve
energy.
On the contrary, with RBT, an
increasing cost of energy will
incentivise consumers to conserve
energy,6 promoting carbon reduction
goals.
Progressive
Higher income households consume
greater amounts of energy, and thus
will be subject to the higher rate,
incurring additional expenses.
Lower income households stand to
benefit, because their energy
consumption tends to fall below the
basic amount, Therefore, they will
enjoy the lower rate, and see their bills
fall.7
Use On the Colorado High Plains. Fort Collins:
Colorado Water Resources Research Institute
Completion Report 135 at p.9 & 10

of 14
RBT Detrimental To Low Income
High Consumption Households
15% of all low income households
have above average energy
consumption.8
Therefore, 15% of low income
households, of which the RBT sought
to make better off, will be subject to
the higher rate, and be made worse
off.
Protecting Low Income High
Consumption “LIHC” Households
It is necessary to understand the
driving characteristics for LIHC
households, in order to effectively
target them to grant relief from the
higher block rate.
Analysis reveals that this group largely
consists of pensioners, living in large,
Trust at p.10
8 Ibid. at p.19
9 White, V., Roberts, S. and Preston, I. (2010),
Understanding ‘High Use Low Income’ Energy
Consumers, Final Report to Ofgem, Bristol:
Centre for Sustainable Energy at p.25
10 Priority Group is defined according to the
CERT definition of vulnerable and low‐income
households, including those in receipt of
eligible benefits and pensioners over the age
of 70.
under occupied homes.9 More specific,
the data reveals that:
76% of LIHC households, are also
classified as “priority group”10
households.11
Integrating an exemption from the
higher block rate, for low income,
“priority group” households, would best
mitigate the detrimental effects on
LIHC households under RBT.
Fuel Poverty
Large, inefficient homes, will have
higher than average energy
requirements. RBT will increase the
cost of bringing these households to
an adequate level of warmth. This
increases the likelihood that
households will move into fuel poverty.
However, low income households tend
to have lower consumption, and under
heat their homes.12 They may now buy
more cheap energy, keeping
11White, V., Roberts, S. and Preston, I. (2010),
Centre for Sustainable Energy at p.25
12 Committee on Climate Change (2008). First
Report: Building a Low-carbon
Economy.London: HMSO; see also Hills, John
(2012) Getting the measure of fuel poverty:
final report of the Fuel Poverty Review.
CASEreport, 72. Centre for Analysis of Social
Exclusion, London School of Economics and
Political Science, London, UK

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expenditure constant, resulting in
warmer homes.
Therefore, although low income
households stand to gain, they are
“theoretically” worse off in the
definitional sense of fuel poverty.
Adopting RBT may cause fuel poverty
targets to be missed, resulting in
political fallout.
Regulation
RBT requires governmental
intervention within the liberalised
market, which is in tension with the
neoliberal ideology that has prevailed
over the last three decades.
III. Financial Transaction Tax
Progressive
LCTP is regressive because of a
corporation’s ability to pass on costs
downstream to consumers. These
costs form a larger proportion of low
income budgets.
FTT is progressive because
distributional impacts are minimal, for it
is difficult to pass costs on
13 Baker et al (2009), A General Financial
Transaction Tax: A Short Cut of the Pros, the
Cons and a Proposal
downstream, as FTT is only levied
upon transactions between financial
institutions. It could raise
approximately £8 billion.13
Arguments For Implementation:
Financial institutions are largely
responsible for the 2008 recession,
causing the deficit to increase. This
has prevented more progressive
measures such as cost recovery
through income tax. As consequence,
the poorest suffer.
As such, the financial sector should
shoulder some of the burden.
Politics
The UK is heavily reliant upon the
financial sector. FTT could affect
competitiveness. For this reason, the
conservative government has opposed
FTT proposals at the EU level.

of 14
CONCLUSION &
RECOMMENDATION
Political opposition to FTT, and cost
recovery through income taxation may
be insurmountable, and thus their
adoption unlikely.
However, neoliberal ideology, or
pursuits of political targets, are not
strong enough arguments to block
RBT, which may instil fairness into a
regressive and unfair system.

of 14
EXECUTIVE SUMMARY
 Costs of climate change policy are distributed
regressively
 Recovering costs through income tax or a
financial transaction tax is progressive, but not
politically viable.
 A rising block tariff, implemented in tandem with
relief for low income “priority groups”, is the best
alternative to mitigate regressive impacts.
 The rising block tariff promotes climate change
policy goals, by incentivising energy conservation
 Fuel poverty could increase under a rising block
tariff, whilst still making low income homes better
off.
TECHNICAL BRIEF
INTRODUCTION
The low carbon transition plan,14 “LCTP”, sets government policy to meet carbon-
related targets, by internalising externalities associated with carbon emissions,
through a carbon price.
LCTP:A “Triple Injustice” For The Poor
I. Heaviest Burden
Adjusting income for household size
and composition to obtain “equivalised
income,” and then regressing the log
of per capita emissions per £ of
income upon equivalised income
provides the following result.15
Increasing weekly income by £100,
causes an 8.6% reduction in
emissions as a share of income. The
14 HM Government, (2009). The UK Low
Carbon Transition Plan. National strategy for
climate and energy.
Exclusion, 2011 at p.33

of 14
coefficient is statistically significant at
the 1% level.
Poorer households have a higher ratio
of emissions to income, therefore, an
increase in the price of carbon will
effect these households the most.
II. Emit Less
Regressing log of per capita
emissions, upon equivalised income
produces the table below.16
Increasing weekly income by £100
causes a 6.9% increase in
emissions.17 The coefficient is
statistically significant at the 1% level.
III. Least Likely To Benefit
22% of households will see a reduction
in energy bills, defined “winners”.18
Chi‐squared automatic interaction
detector analysis shows that all
“winners”, benefited from insulation
measures, complimented with either a
power or heat technology.19
The graph20 above shows that only 5%
of low income households21 received a
power technology.
Low income households are severely
underrepresented in the “winning”
category.
18 18 Preston, I., White, V., and Guertler
P,(2010) Distributional Impacts of Climate
Change Policies, Final Report to EAGA
Charitable Trust at p.71
19 Ibid at p.60
20 Ibid at p.45
21 Decile 1-3

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POLICY RESPONSE
I. Policy Cost Recovery
Through Income Tax
Progressive
The graph, below, shows changes in
disposable income when recovering
costs through income taxation. The
declining line shows that this measure
is progressive.22
Trust at p.56
Politically Unpalatable
Due to the large structural deficit,
recovering costs from income taxation
will not be political palatable. This also
precludes policies which include fiscal
transfers and large scale
investments.23
II. Rising Block Tariff (RBT)
Energy providers are barred from
recovering policy costs below some
“basic requirement” amount, thereby
lowering the marginal costs of initial
units of energy. After the mandatory
level, marginal cost of successive units
may be higher. It is essentially a
subsidy from high to low energy
consumers.24
Promotes Consumptive Frugality
The current energy pricing system is of
a decreasing block tariff, “DBT””.25
Exclusion, 2011 at p.42; See also BRE (2009),
An Investigation Of the Effect Of Rising Block
Tariffs On Fuel Poverty. Committee For
Climate Change.
25IAN GOUGH (2013). Carbon Mitigation
Policies, Distributional Dilemmas and
-1500
-1000
-500
0
500
1 2 3 4 5 6 7 8 9 10
Change In Gross
Disposable Income By
Income Decile)

of 14
Total bills increase with consumption,
but at a decreasing rate, due to the
marginal cost diminishing.
Thus the incentive to conserve
declines as lower rate levels are
reached.26
Under RBT marginal costs increase
with increasing consumption, therefore
the total cost of electricity also grows
at an increasing rate.
Social Policies. Journal of Social Policy, 42, pp
191-213 at p.198
26 Gardner, Richard L.,and Robert A. Young.
(1984b] Effects of Alternative Energy Rates
And Rate Structures On Electricity and Water
Use On the Colorado High Plains. Fort Collins:
Colorado Water Resources Research Institute
Completion Report 135 at p.9
27 Ibid at p.10
The incentives to conserve
increases as higher rate levels are
achieved.27
Detrimental To Low Income High
Consumption Households
Regression analysis reveals that
income itself explains only 25% of the
variation in log per capita emissions.28
Therefore, there is considerable
variation in emissions within income
deciles, shown below.29
Bubble width represents total count of
households. The red box shows
29 White, V., Roberts, S. and Preston, I.
(2010), Understanding ‘High Use Low Income’
Energy Consumers, Final Report to Ofgem,
Bristol: Centre for Sustainable Energy at p.9

of 14
households with an energy
consumption above average.
15% of low income households have
above average energy consumption.30
RBT penalises low income
households with high
consumption.31
III. Exemption For Low Income
“Priority Groups”
Data, shown below,32 reveals the
characteristics of LIHC households:
 76% are “priority group”33
 40% are over 70 years’ old
30 Ibid. at p.19
32
White, V., Roberts, S. and Preston, I. (2010),
Centre for Sustainable Energy
33 “Priority Group” Is Defined According To The
CERT; Includes Pensioners Over The Age Of
An exemption to the higher rate block,
for low income, “priority group”
households, would provide the best
proxy for targeting and protecting LIHC
households.
Fuel Poverty Increases Yet
Households Better Off
Large, inefficient homes, will have
higher than average “modelled
consumption” requirements to bring to
an “adequate level of warmth, thus
engaging the higher tariff price. The
equation below shows that the fuel
poverty ratio for energy intensive
households would increase, raising the
probability that households will
become fuel poor. Households in fuel
poverty tend to under consume
energy.34
Under RBT they may consume greater
amounts of cheaper energy, as
illustrated in figure (b), below, whereby
moving from DBT to RBT, low income
70.http://lsx.org.uk/docs/events/3539/British%2
0Gas%20CERT%20-
%20Green%20DealECO%20-
%20HANDOUTS.pdf
34 Committee on Climate Change (2008). First
Report: Building a Low-carbon
Economy.London: HMSO.

of 14
households increase consumption
from 𝑄0 to 𝑄 𝑍, resulting in a warmer
home.
This is true even if the household has
a high energy requirement, and
simultaneously slides into fuel poverty.
RBT may cause fuel poverty targets to
be missed, resulting in political fallout.
35 A General Financial Transaction Tax: A
Short Cut of the Pros, the Cons and a
Proposal; and Baker et al (2009)
Politics
RBT requires governmental
intervention within the liberalised
market, which is in tension with the
neoliberal ideology that has prevailed
over the last three decades.
IV. Financial Transaction Tax
Progressive
LCTP is regressive because of a
corporation’s ability to pass costs
downstream to consumers. These
costs form a larger proportion of low
income budgets.
FTT is progressive because the
distributional impacts are minimal, for it
is difficult to pass costs on to
consumers downstream as it is only
levied upon transactions between
financial institutions. It could raise
approximately £8 billion.35
Arguments For Implementation:
Financial institutions are largely
responsible for the 2008 recession,

of 14
causing the deficit to increase. This
has prevented more progressive
measures such as cost recovery
through income tax. As consequence,
the poorest suffer.
With respect to the European
Emissions trading scheme, a cap and
trade mechanism for emissions
permits, the recession weakened
demand, causing an excess of
emissions permits, resulting in
deflationary pressure on the carbon
price. This has hampered the
effectiveness of the EU ETS.
As such, the financial sector
should shoulder some of the
burden.
POLITICS
The UK is heavily reliant upon the
financial sector. FTT could affect its
competitiveness. For this reason, the
conservative government has opposed
its proposed implementation at the EU
level.
CONCLUSIONS &
RECOMMENDATIONS
Political opposition to FTT, and cost
recovery through income taxation may
be insurmountable, and thus their
adoption unlikely.
However, neoliberal ideology, or
pursuits of political targets, are not
strong enough arguments to block
RBT, which may instil fairness into a
regressive and unfair system.

of 14
Bibliography
Baker et al (2009), A General Financial Transaction Tax: A Short Cut of the Pros, the
Cons and a Proposal;
BRE (2009), An Investigation Of the Effect Of Rising Block Tariffs On Fuel Poverty.
Committee For Climate Change.
Committee on Climate Change (2008). First Report: Building a Low-carbon
Economy.London: HMSO.
HM Government, (2009). The UK Low Carbon Transition Plan. National strategy for
climate and energy.
White, V., Roberts, S. and Preston, I. (2010), Understanding ‘High Use Low Income’
Energy Consumers, Final Report to Ofgem, Bristol: Centre for Sustainable Energy
Gough I et al. The distribution of total greenhouse gas emissions by households in
the UK, and some implications for social policy. London, Centre for Analysis of
Social Exclusion, 2011
Gardner, Richard L.,and Robert A. Young. (1984b] Effects of Alternative Energy
Rates And Rate Structures On Electricity and Water Use On the Colorado High
Plains. Fort Collins: Colorado Water Resources Research Institute Completion
Report 135
IAN GOUGH (2013). Carbon Mitigation Policies, Distributional Dilemmas and
Social Policies. Journal of Social Policy, 42, pp 191-213 at p.198
Preston, I., White, V., and Guertler P,(2010) Distributional Impacts of Climate
Change Policies, Final Report to EAGA Charitable

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