The Distributional Impacts of Time-Varying Electricity Pricing: A Novel Approach to Estimating Household Income,

Abstract As interest in the distributional effects of climate policies gains prominence, designing electricity tariffs that are both efficient and equitable becomes critical. Efficiency often favors the shift from time-invariant to time-of-use (ToU) or real-time prices (RTP), but this transition may have distributional implications. We develop a framework to assess the implications and the channels through which distributional impacts manifest. Central to our approach is a novel method that infers individual household income by combining zip-code-level income data with household-level electricity consumption. We demonstrate the value of this method in the Spanish context. First, we show that using more granular estimates of income has an impact on the distributional assessment of electricity tariffs. Second, we find that the potential distributional impact of RTP is very modest compared to the impact of ToU. The most salient effect of RTP is to increase bill volatility, particularly so for the low-income group.