Balancing act: How to make low-carbon policies fairer

·2-min read
The study suggests that revenue from environmental taxes could be used to support social benefits or tax credits for households and small businesses.

What are the best policies to put in place for reducing greenhouse gas emissions without penalizing lower-income households and small businesses? A recent meta-analysis from researchers at the University of Cambridge brings some answers to the question.

Carbon tax policies work on the basis that the polluter pays. In other words, those with the highest carbon emissions pay the most, the ultimate aim being to raise awareness among countries, organizations, companies and consumers, and encourage them to use cleaner sources of energy.

It sounds simple in theory, but the reality is much more complex. One of the major issues, for example, is how to establish carbon taxes that are fair for "everyone." While large companies may have the means to shoulder the financial burden, what about small businesses and lower-income households?

"Unless low-carbon policies are fair, affordable and economically competitive, they will struggle to secure public support -- and further delays in decarbonization could be disastrous for the planet," explains the study's lead author, Dr Cristina Peñasco, a public policy expert from the University of Cambridge.

This meta-analysis reviewed around 7,000 published studies of policies aimed at achieving carbon neutrality. Published in the journal, Nature Climate Change , the results were compiled into an interactive online tool allowing users to explore evidence around carbon-reduction policies from across the globe, notably in terms of cost and competitiveness.

The 10 kinds of policy instruments covered by the research range from forms of investment -- such as targeted R&D funding -- to financial incentives like subsidies, taxes or the auctioning of energy contracts.

The policies mentioned also include market interventions (emissions permits, tradable certificates for clean or saved energy) and efficiency standards like those for buildings.

No "one-size-fits-all solution," but a combination of policies

The researchers estimated the positive or negative impacts of each of these measures in various environmental, industrial and socio-economic areas. According to their analysis, half of the policies have a far more negative than positive impact when it comes to the fairness with which the costs and benefits are spread.

For example, feed-in tariffs pay renewable electricity producers above market rates. However, these costs could increase energy prices for everyone if they get passed on to households, and the less well-off would end up spending a larger portion of their income on energy.

"Small firms and average households have less capacity to absorb increases in energy costs," explains co-author Laura Diaz Anadon, Professor of Climate Change Policy.

However, certain solutions could help redress the balance, the study suggests. Revenue from environmental taxes could, for example, be used to support social benefits or tax credits for households and small businesses, which would stimulate economies while reducing carbon emissions.

"There is no one-size-fits-all solution," concludes Cristina Peñasco. "Policymakers should deploy incentives for innovation, such as targeted R&D funding, while also adapting tariffs and quotas to benefit those across income distributions."