Since services employ more people and since they are much more employment-intensive than energy and manufacturing, employment usually increases as a result of GHG mitigation. However, the effects are small and diffused, and there is hardly any literature on specific sectoral effects for the service industries apart from the multisectoral studies reviewed in section 9.2.1 above.

The impact of mitigation on households comes directly through changes in the technology and price of household use of energy for heat, light, and power, and indirectly through macroeconomic effects, particularly on the income of households and the employment of their members. An important ancillary benefit for households is the potential improvement in quality of indoor, local, and regional air.

Most studies analyze the effect of mitigation strategies on GDP, which is often taken as an indicator of welfare. However, this measure does not capture the effects on the distribution of income between households. There are some studies that look at private consumption and other constructed indices of welfare, but these are few in number. This literature concentrates more on the developed economies, as these are the countries that would be taking actions first to reduce the emissions. The effect on developing economies is indirect through the trade effects and energy price effect.

9.2.10.1 Distributional Effects of Mitigation

These are mainly discussed in Chapter 8 (Section 8.2.2.3). There are a number of studies on the domestic income distributional effects of carbon taxation, mostly for developed countries (Johnson et al., 1990; Chandler and Nicholls, 1990; Poterba, 1991; Bertram et al., 1993; Hamilton and Cameron, 1994; Symons et al., 1994; Cornwall and Creedy, 1996). These studies show a regressive effect of carbon taxes, but a progressive effect if revenues are returned to disadvantaged groups. As the share of household expenditure on energy and the dependence on high-carbon fuels of the lower income groups is high, the impact of a carbon tax would be disproportionately higher on these lower income groups (Goldemberg and Johansson, 1995; Yamasaki and Tominaga, 1997). Barker and Kòhler (1998) review a number of studies on impact of carbon taxation on households. Their analysis of an EU carbon tax indicates that taxation on domestic energy is regressive and taxation on road fuels is weakly progressive. They also show that revenues recycled through employer taxes could increase disposable income for all income groups in the study.

9.2.10.2 Electricity and Demand-side Management

A number of studies point out that power sector deregulation and competition will improve the efficiency of operations as well as management, which will result in a reduction in electricity rate charged to the end users (Hsu and Tchen, 1997). Demand-side management (DSM) instituted by electric utilities would increase electricity prices, but could lead to a reduction in total bills to participating customers (Hirst and Hadley, 1995), although the increased electricity prices could deter companies from using these measures in a competitive market. Parker (1995) indicated that DSM measures could lead to job creation from production and installation of equipment.

9.2.10.3 Effects of Improvement in Energy Efficiency

Improvements in the efficiency of energy production may have substantial impacts on households. Bashmakov (1993) reports a reduction in energy bills for end users and a substantial reduction in environmental costs for Russia. The study also reports that every rouble invested in energy efficiency generates 5 times more jobs than investments in energy production. On the other hand, Gaj et al. (1997) report a high social cost of economic transition caused by macroeconomic reforms, which indirectly reduce GHG emissions, because employment in non-competitive sectors is high in Poland.

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