How to integrate fairness in policy design – the case of dynamic grid tariffs

Stijn NEUTELEERS (BIOGOV, Université Catholique de Louvain)

Contrary to the standard view in economics, this paper assumes that fairness and efficiency should be dealt with together in designing policy instruments. It is however an open question how fairness can be incorporated in policy design. Either one looks at people’s fairness perceptions (economics and social sciences) or one applies universal ethical principles (applied ethics). Both are however limited: fairness seems more objective than perceptions and more contextual than universal principles. Applying fairness requires looking for an equilibrium between both. This paper applies such an equilibrium approach to grid tariffs for electricity networks. Given the importance of peak use, economists argue for a dynamic tariff or peak pricing, but such tariffs are often perceived as unfair. Assessing fairness requires three step: (1) examine unfairness perceptions; (2) contrast these perceptions with criteria from ethical theories; and (3) integrate both to compare with other ideal-type tariff structures. Contrary to other tariff structures, the fairness of peak pricing appears to be more ambiguous and dependent upon its implementation conditions.