Distributional consequences of climate change impacts on residential energy demand across Italian households

The paper evaluates the macroeconomic and distributional implications for Italian households and regions of both climate change impacts and a carbon tax. We use a recursive-dynamic general equilibrium model to evaluate aggregate changes in prices, income and expenditure, and a sequential arithmetic micro-simulation module to downscale them to the household level. Climate change impacts are regressive, adding to the already regressive effects of a carbon tax. Wealthy households reduce expenditure on gas and petroleum fuels the most, whereas households in the lowest deciles increase electricity expenditure relatively more. Climate and policy impacts differ significantly also within income groups, reflecting regional variations in the size of climate shocks, the prevalent climate conditions, and the energy mix. We highlight a new emerging risk related to those households that will be exposed to higher temperatures and will not be able to sustain the electricity expenditure needed for adaptation, and we emphasize the importance of accounting for the distributional consequences of climate change impacts when designing climate policies.