The effects of alternative equity considerations in the design of climate policies: The case of residential heat pump subsidies

Electric heat pump subsidies are often designed to encourage adoption among low-income and energy-burdened households. The US government has proposed several methods to target these households, but the implications for equity, social welfare, and CO 2 emissions are not clear, since low-income households are diverse in their location, energy behavior, and living conditions. We simulate various subsidy allocation criteria, chosen to maximize aggregate welfare, CO 2 emissions reductions, and four different equity criteria. We find a negative association between equity and aggregate social welfare. Emissions reductions and equity are also inversely related, and the maximum reductions are achieved by selecting households with the shortest paybacks and lowest energy burdens. No single allocation rule can simultaneously maximize all objectives. Further, we find substantial heterogeneity in the distribution of beneficiaries across states, implying that equity interpretations can have political as well as social consequences.