Article Published in Ecological Economics, Vol.192
The relationship between a household’s income and its carbon emissions is often summed up by a number, the elasticity of the carbon footprint with respect to income. I survey here the cross-sectional studies of household carbon footprints and their estimation of the elasticities with respect to income and with respect to expenditures. The difference between these two elasticities comes from the personal saving rate’s increasing with income.
I compile published estimates of the elasticities of the carbon footprint or energy requirements, and compute new estimates. This amounts to around 80 estimates (one-third of which are newly computed) for over 20 countries. It is found that, generally, the carbon footprint grows less rapidly than expenditure, and confirms that the income elasticity is lower than the expenditure elasticity. Unambiguously, the assumption of an income elasticity equal to unity is not supported by the published literature.
I discuss the difference between carbon inequality and carbon concentration, the ambiguity in the literature between income elasticity and expenditure elasticity. I present the limitations of our knowledge of the relationship between income and carbon footprint, from contestable assumptions in the methodology as well as measurement errors in household budget surveys. I examine how elasticity can be used in “top–down” assessment of the global distribution of carbon footprints.
We propose an exploratory and theoretical study which introduces how and why a particular and innovative ecological accounting approach, the CARE model, currently called upon by a growing number of practitioners and researchers, is a relevant framework to re-conceptualise the issue of climate finance