Developing effective carbon and electricity pricing policies with the consideration of the heterogeneity in firm and household behavior

Abstract

I propose an efficient market-based policy instruments to achieve major reductions in greenhouse gas emissions from the industry and residential sectors. First, in order to propose a policy decision-making framework that reflects firms’ expectation on industry-level learning effect over low-carbon production technology, I developed a two-stage model with endogenous technical change. Second, to elicit household preference for dynamic pricing for electricity with information feedback, I conducted a discrete choice experiment over Korean households. Then, through numerical and policy simulations I show that the proposed framework supports a face-in-the-door approach to carbon pricing for the producers whereas a phasic and gradual diffusion of dynamic pricing required to residential households, which counter- arguments the conventional plan of the government.