UC Davis

Market-based policies to address fossil fuel-related externalities including climate change typically operate by raising the price of those fuels. Increases in energy prices have important consequences for a typical U.S. household that spent almost $4,000 per year on electricity, fuel oil, natural gas, and gasoline in 2005. A key question for policymakers is how these consequences vary over different regions and subpopulations across the country—especially as adjustment and compensation programs are designed to protect more vulnerable regions. To answer this question, we use non-publicly available data from the U.S. Consumer Expenditure Survey over the period 1984–2000 to estimate long-run geographic variation in household use of electricity, fuel oil, natural gas, and gasoline, as well as the associated incidence of a $10 per ton tax on carbon dioxide (ignoring behavioral response). We find substantial variation: incidence from the tax range from $97 dollars per year per household in New York County, New York to $235 per year per household in Tensas Parish, Louisiana. This variation can be explained by differences in energy use, carbon intensity of electricity generation, and electricity regulation.