New Delhi: Climate policies often have a hidden cost that poorer families have to pay. Carbon pricing makes companies pay for the greenhouse gases they emit, but this raises the cost of energy and transport. A recent study found that even returning this money to households is not enough to make the green transition fair for everyone.
The study, published in Nature Climate Change on 13 October by a team of international researchers focuses on the burden climate policy might place on poorer households, a fact that has received much attention in public and academic debate.
“In this view, the regressive effects of carbon pricing can be neutralized by recycling revenues to lower-income households, thereby reconciling mitigation and redistribution objectives. We argue that this framing is too stylized to explain observed political resistance to carbon pricing and the mixed record on the acceptability of tax-and-transfer schemes and can lead to overly simplistic policy recommendations,” read the study.
The study examined how various combinations of climate policies affected households in the European Union (EU). Researchers found that a combination of making emissions expensive using regulations, subsidies, and even direct transfers can help reduce the impact of the climate transition on different income groups.
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Combining policies
The findings were based on data from over 260,000 households across 25 EU countries. Researchers compared three policies aimed at reducing greenhouse gas emissions by 55 per cent in 2030. The first method relies on regulations and standards, the second tries to introduce tighter carbon pricing for industries, transport, and other such polluting sectors, and the third combines the first two approaches but uses nearly half the additional revenue to subsidise the cost of using clean energy in homes.
According to the study, the first method is not ideal because lower-income households tend to spend a larger percentage of their income on energy, and regulations don’t help their cause. However, the third option, combination of the first two, leads to helpful subsidies for households upgrading their homes with cleaner energy systems. The authors warn that the impact and fairness of climate policies ultimately depend on the local context.
“…the mix of policy measures that achieves a fair and effective transition will depend on the local context, including the interaction with existing (social) policies, on the way measures such as standards are implemented, on the (informational and credit) barriers to subsidy take-up, on the ambition level of climate change mitigation, on the extent of imperfect information on housing markets and so on,” read the study.