Households allocate their income to maximize their utility. Overall consumption depends on the cost of goods and services (price) and income. Carbon prices and other transition measures (e.g., energy efficiency targets, banning of internal combustion engines vehicles) has direct implications on household consumption. People tend to substitute most expensive goods, for example fossil fuels with cheaper alternatives, while the uptake of expenditures related to energy efficiency or the purchase of “greener” equipment imply a lower disposable income for the consumption of other goods and services or lower savings, or both.

With respect to income changes in the production structure of the economy imply changes in overall employment and income sources (wages and capital rents). Depending on the direction of changes households may end up with higher or lower income, hence consumption. Another factor that may influence household’s consumption is the recycling of carbon revenues: from lump-sum transfers to changes in overall taxation or measures that support employment each option has different effect on the behavior of households.