Distributive Impacts from a Kyoto Policy

The research uses a welfare model based on consumer surplus to analyze how energy price hikes under a Kyoto Protocol scenario disproportionately affect low-income households in Canada. Through simulations in Alberta and Ontario, the authors find that while high-income groups reduce energy consumption the most, low-income groups suffer the greatest loss in welfare. The paper proposes an income-differentiated pricing system and carbon-reduction tax rebates for high-income groups as mechanisms to ensure equity and protect the basic energy needs of the poor.

• Low-income households in Canada allocate a significantly higher proportion of their budget to energy expenses compared to high-income groups; in 2000, the ratio of total energy expenditures to total expenditure for the low-income group was 8%, which is 300 per cent higher than the 2% ratio for the high-income group.
• Under a Pareto Efficient Simulation of a carbon constraint, the high-income group experiences the largest drop in the quantity of energy consumed, but the low-income group suffers the most significant drop in welfare (consumer surplus) because they have limited scope to further reduce energy use while maintaining basic warmth.
• An 'Egalitarian Simulation' demonstrates that equalizing the percentage change in consumer surplus across income groups requires a differentiated energy pricing system where high-income groups pay a higher price to facilitate a transfer of consumer surplus to lower-income groups.
• The 'Basic Need Simulation' shows that a relatively small increase in the price paid by high-income groups can completely mitigate the drop in energy demand for middle- and low-income groups. For example, a 1.93 per cent decrease in energy use by the high-income group in 2020 could ensure other groups see no drop in energy demand with a price differential of $1.10/GJ.
• Spatial analysis reveals that low-income residents in Alberta are more disadvantaged than those in Ontario; under a utilitarian regime, the low-income group in Alberta faces a consumer surplus drop of approximately 16 per cent, compared to an 11 per cent drop for the low-income group in Ontario.
• The authors argue that standard pricing schemes like flat rate, two-part, block structure, or lifeline tariffs fail to address distributive issues because they do not discriminate by income. They recommend an income-differentiated pricing system based on tax returns and suggest providing tax rebates to high-income groups based on the marginal reduction in their carbon emissions to increase political feasibility.

APA

Duraiappah, A. K., Guertin, C., & Khumbakar, S. (n.d.). Distributive Impacts from a Kyoto Policy. International Institute for Sustainable Development. https://www.iisd.org/system/files/publications/energy_distributive_impacts_kyoto.pdf

Chicago

Duraiappah, Anantha Kumar, Chantal Guertin, and Subal Khumbakar. Distributive Impacts from a Kyoto Policy. International Institute for Sustainable Development, n.d. https://www.iisd.org/system/files/publications/energy_distributive_impacts_kyoto.pdf.

Wikipedia

{{cite report |last1=Duraiappah |first1=Anantha Kumar |last2=Guertin |first2=Chantal |last3=Khumbakar |first3=Subal |title=Distributive Impacts from a Kyoto Policy |publisher=International Institute for Sustainable Development |url=https://www.iisd.org/system/files/publications/energy_distributive_impacts_kyoto.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{duraiappahnddistributive, author = {Duraiappah, Anantha Kumar and Guertin, Chantal and Khumbakar, Subal}, title = {{Distributive Impacts from a Kyoto Policy}}, institution = {International Institute for Sustainable Development}, url = {https://www.iisd.org/system/files/publications/energy_distributive_impacts_kyoto.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }