Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/319624 
Year of Publication: 
2025
Series/Report no.: 
UFZ Discussion Paper No. 2/2025
Publisher: 
Helmholtz-Zentrum für Umweltforschung (UFZ), Leipzig
Abstract: 
This paper analyses the impact of carbon pricing on residential heating affordability using a theoretical household model with endogenous choice of a renewable heating technology. We compare two compensation policies: a renewable heating subsidy and a lump-sum transfer. The subsidy is the most effective policy to reduce the household's burden if the renewable heating technology is the optimal choice with carbon pricing alone. Otherwise, the relative effectiveness of the compensation policies depends on whether they shift the household's choice towards renewable heating. Overall, our study emphasizes the need of considering technological adjustment when analyzing how carbon pricing affects heating affordability.
Subjects: 
residential heating
affordability
climate policy
environmental taxes and subsidies
JEL: 
D63
H23
Q58
Document Type: 
Working Paper

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