Beyond carbon price tags: Achieving climate justice in the EU
As climate policies evolve, so too must their approach to equity: a just and equal transition is “probably the only one that’s feasible”, explains Matthias Weitzel, researcher at the European Commission’s Joint Research Centre. Navigating the complexities of EU climate policies, such as the balance between regulatory standards and carbon pricing, is crucial to ensure fairness and equity across society.
The impact of climate policies on citizens varies not only according to income and other types of vulnerabilities but also household consumption patterns — notably regarding essential goods like food and energy, on which lower-income households spend a greater share of their income. Climate policy and its implications for equity and effectiveness take center stage in this interview with Matthias Weitzel, researcher at the European Commission’s Joint Research Centre (JRC). Delving into the intricate landscape of climate policies in the European Union (EU), Weitzel provides valuable insight into how regulations and policies help achieve ambitious climate targets. Drawing on his recent research paper “Prices and Standards for Vertical and Horizontal Equity in Climate Policy,” published on SSRN, Weitzel offers nuanced perspectives on the challenges and opportunities inherent in crafting equitable and effective climate policies.
What is the role of regulations and policies, particularly at the European level, in achieving climate targets such as the 1.5˚C goal in a fair and rapid way?
When examining climate policies, it becomes evident that they impact different segments of the population in different ways. This discrepancy arises from differences in household consumption patterns, particularly concerning essential goods such as food and energy, where lower-income households allocate a higher proportion of their income compared to wealthier households. In this context, implementing a carbon price to raise the cost of fossil-fuel based energy would disproportionately affect poorer households, exacerbating inequality and rendering the policy regressive. However, alternative strategies, such as regulatory measures, offer viable pathways to achieve climate targets while mitigating distributional disparities.
In the EU, existing regulations on vehicle emissions, building standards, and energy efficiency exemplify this approach. These regulations can set specific criteria for market products, fostering cleaner energy usage, and subsequently reducing emissions. Unlike carbon pricing, regulatory measures do not directly inflate energy prices. Nevertheless, transitioning to more efficient appliances may entail higher upfront costs, affecting prices for housing and consumer goods. Thus, while regulatory policies offer a distinct avenue for emission reduction, they introduce alternative economic considerations compared to carbon pricing.
What are the implications of policy packages on mitigation efforts?
The consequences of policy packages on mitigation efforts are multifaceted and warrant careful consideration. Different policy options entail distinct approaches to addressing potential negative effects, underscoring the importance of comprehensive policy frameworks, or packages. For instance, implementing a carbon price would elevate the price of fossil-fuel based energy, yet at the same time generate government revenue from carbon pricing. These revenues can mitigate adverse impacts by redistributing them to households. Even a straightforward redistribution scheme, such as providing equal amounts to each household, can yield benefits for lower-income households as the allocated sum represents a larger proportion of their total income. Consequently, this redistribution mechanism serves to counteract the regressive nature of carbon pricing policies, potentially offering tangible benefits to economically disadvantaged households.
How would you propose a fair and equitable approach to implementing carbon pricing?
A combination of carbon pricing and non-pricing strategies is the way forward. Choosing an approach to carbon pricing depends largely on societal preferences, particularly regarding inequality. It’s important to note that carbon prices not only impact lower-income households disproportionately but also vary within income groups. For instance, differences in location and housing conditions can significantly influence how households are affected. Urban dwellers may have easier access to their workplace, while rural residents may face longer commutes. Similarly, households in newer, more energy-efficient buildings fare differently than those in older structures.
Implementing a carbon price alone would require relatively high rates to achieve climate targets and therefore can have a significant impact on households that are faced with longer commutes or live in energy inefficient buildings. However, coupling carbon pricing with regulatory standards can mitigate these disparities. By setting standards alongside carbon pricing, we can achieve the same climate policy targets without imposing very high carbon prices, thus avoiding disproportionate impacts on different households. In addition, regulatory measures like standards can be useful where market failures exist and carbon pricing alone may not provide sufficient incentives to reduce emissions — for example, when the type of heating or the level of energy efficiency is chosen by a landlord, a tenant may not be able to substantially influence emissions.
How is this translated in terms of modeling?
We have incorporated two datasets — a household budget survey and an income survey — in our economic model. Typically, economic models operate with a single household, which obviously isn’t sufficient to understand how policies affect different households. With our dataset of approximately 200,000 households in Europe, we have ample observations to analyze how various policies impact different types of households. We can assess consumption patterns across income distribution and within groups of households with similar incomes but different consumption habits.
For example, even among households within the middle-income bracket, there are significant variations in energy expenditure for heating and transportation. Factors such as building types, urban layouts, and commuting distances contribute to these differences.
How can these findings affect policy instrument choices and guide strategies towards achieving equality?
What we have observed in Europe is that climate policies, or any measures aimed at reducing emissions, can have unintended consequences if they are not carefully crafted or communicated effectively. Take, for instance, the yellow vest movement in France, sparked by proposed fuel tax hikes, which are somehow akin to carbon pricing. This resulted in widespread protests. Similarly, in Germany, there were demonstrations against a proposed law to ban certain types of fossil boilers for heating. Such actions can provoke significant unrest within communities.
In this context, the European Commission’s former Executive Vice-President for the Green Deal, Frans Timmermans, emphasized the need for a just transition. Without it, he said, achieving any transition would become challenging due to public resistance. Therefore, to ensure successful transition, policymakers must design policies that avoid disproportionately impacting certain segments of the population. Otherwise, they risk public backlash, making the policies impossible to implement.
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