Carbon tax and household energy choices: A regional study of the UK

This study examines carbon taxation's impact on UK households' energy choices, focusing on socioeconomic factors and fuel substitution using household microdata in a Multinomial Logit (MNL) framework. Rural households, reliant on costly, carbon-intensive fuels like heating oil and LPG, are significantly affected by carbon price changes, while urban households have cheaper alternatives. Findings show that rising carbon tax increases carbon-intensive fuel costs, prompting urban households to boost combined electricity and mains gas use from 32.8 % to 50.6 %, while reducing LPG and electricity use from 12.3 % to 6.6 %, and heating oil and electricity from 9.7 % to 6.1 %. Conversely, rural households, facing fewer choices, turn to more expensive fuels; combined electricity and LPG use rises from 14.1 % to 39.3 %, and electricity and heating oil use from 9.1 % to 36.1 %. This study provides novel UK-specific insights into regional and socio-economic disparities in energy transitions under carbon taxation. It highlights the disproportionate burden on low-income and rural households, emphasizing the need for targeted revenue recycling, regional support, and measures to combat energy poverty. The findings offer practical guidance for policymakers to design equitable carbon tax policies and ensure a just transition to a low-carbon economy. • Carbon taxes shift UK households from carbon-heavy to cleaner energy options. • Urban households favour electricity and mains gas; rural areas rely on LPG and heating oil. • Multinomial Logit model captures regional and income-based fuel substitution trends. • Low-income and rural households bear disproportionate carbon tax burdens. • Tax revenue recycling is essential for equitable energy transitions.