A Study of Energy Tax and Rebate Schemes: Energy Conservation and the Question of Equity

213 p.Thesis (Ph.D.)--University of Illinois at Urbana-Champaign, 1983.Taxing all kinds of primary energy at the well-head on a $/BTU basis is suggested. This aims at inducing energy conservation throughout the economic system. To reduce the financial pressure of the tax on consumers, especially the poor, tax revenues could be rebated to households. It has been attempted to design an "equitable" rebate scheme.A mathematical model has been developed which approximates the reduction in a household's total energy consumption in response to higher energy prices and different rebate schemes. This model is based on the assumption that energy consumption is a function of a household's real income, prices of different commodities and energy intensities.The amount of energy saved and the change in real expenditure of a household has been calculated for four tax rates; 50%, 100%, 224% and 400%, and five rebate schemes; one regressive, two progressive, one income distribution preserving and the flat per capita rebate. The results indicate that, for a given tax rate, the choice of rebate scheme does not significantly affect the amount of energy conserved by the households. However, the effect of different rebate schemes on a household's real expenditure could be dramatically different.The change in real expenditure of a household for "income distribution preserving" rebate is less than the other rebate schemes. A regression analysis indicates that the amount of rebate paid to a household based on this scheme heavily depends on the household's real expenditure before tax, family size and degree of urbanization of the place of residence of the household.The change in energy consumption of other final demand sectors and the energy conserved throughout the economy have also been approximated. There has been an actual reduction of 13.84% in the amount of energy consumed per GNP dollar between 1972-73 and 1980. This study "predicts" that reduction to be about 13%.The case of tax and rebate has been compared with a hypothetical decontrol of natural gas in terms of their effects on energy consumption and real expenditure of a household. It is concluded that, from an "equity" standpoint, the tax and income distribution preserving rebate would be preferred to decontrol of natural gas as a means of conserving energy.U of I OnlyRestricted to the U of I community idenfinitely during batch ingest of legacy ETD