Vanessa Ludden, Silvia Beghelli, Kristina Broens
December 12, 2022
The winners and losers of climate policies: How to ensure a Just Transition
In the short-term, the distribution of benefits and costs of climate policies will be unequal between households and income groups, leading to both winners and losers. In this article, our experts provide policy makers with key mitigating actions to ensure a more Just Transition.
In recent decades, changes in climate have impacted natural and human systems on all continents and across oceans. Going forward, research shows that these changes will continue to materialise. This will lead to an alteration of ecosystems, disruption of food production and water supply, damage to infrastructure and settlements, increased morbidity and mortality, and will have consequences for mental health and human well-being.
In the medium to longer term, the overall benefits of climate policies have the potential to outweigh such costs.In the short-term, on the contrary, the distribution of benefits and costs of climate policies will be unequal between households and income groups, leading to both winners and losers.
The social costs of climate policy
The intersectionality of inequalities causes them to mutually reinforce each other, creating self-reinforcing paths of (dis)advantage. An example of this is that income inequality is likely to have an impact on health, access to education and living environment.
In the short-term, on the contrary, the distribution of benefits and costs of climate policies will be unequal between households and income groups, leading to both winners and losers.
More advantaged groups are likely to gain access to better education, jobs and quality healthcare more easily compared to members of less advantaged groups, who do not have the same chances. As a result of this, inequalities in education attainment, income and health increase. As such, intersecting dimensions of inequality are drivers of multidimensional vulnerability.
In this context people’s vulnerability to climate change and climate change policies increases when there are limitations to their baseline conditions, capabilities and opportunities to adapt and adjust.
The decommissioning of the coal industry represents a concrete and sector-specific example of the negative impacts that may be associated with climate action.
Case example: Decommissioning of the coal industry
The decommissioning of the coal industry is expected to have a negative impact on communities whose livelihoods depend on the extraction and use of coal, peat or oil shale.
As of 2018, it is estimated that the coal sector directly employed about 237.000 people in 21 Member States (108 European regions, NUTS 2 level)1 . The number of indirect jobs dependent on coal activities was, instead, approximately 215.000. Direct employment in the coal industry is strongly concentrated in Europe: out of the 108 regions where coal infrastructure is present, 20 of those account for more than 80% of the workforce employed in the sector.
Many of these jobs will become redundant in the next decade, both in direct and indirect coal activities. In the coming decade, the expected direct job losses in power plant operation due to coal fired power plant decommissioning could reach around 34.000 jobs. That is 64% of the estimated current employment (52.000) in this activity. It is also estimated that approximately 59% of the workforce in coal mining faces a high risk of being made redundant during the next decade.
With a few exceptions, the regions that will suffer the most are located in Eastern Europe, the majority of which have a lower regional GDP/capita than the national average. This highlights how important it is to support these regions throughout the transition.
What can be done to mitigate these social costs?
Addressing the inequality outcomes of climate policies calls for a renewed approach to policy making at all levels: EU, national, regional and local. Social inequalities are to be taken into account across the policy cycle and translated into adequate compensation measures.
Multiple potential compensation measures exist. While none of these are unilaterally superior to the others, the most adequate compensation measure depends on the specific contextual factors at play in each situation. The most common compensation measures include revenue recycling, exemptions, structural adjustment assistance and holistic adaptive support.
Examples of compensation measures
Revenue recycling appears as the most popular type of mitigation measure. It consists of earmarking tax revenues for specific purposes, contributing to correcting the market distortions and negative distributional outcomes caused by the introduction of the tax.
In particular, revenue recycling may allow for:
- Differentiated transfers to households, which would allow to redistribute resources towards those who are primarily affected by the policy. On the other hand, distributing lump-sum payments to households could be an alternative; however, these would not improve the regressivity of a tax, as they would maintain the gap between income groups;
- Reducing labour taxes, income taxes and social security contributions, thus reducing income inequality;
- Introducing redundancy benefits, unemployment benefits, early retirement benefits, pension ‘bridging’ and healthcare benefits to mitigate workers’ economic losses.
Exemptions allow specific groups of citizens to be permanently or temporarily exempted from certain climate policies. For instance, vulnerable households could benefit from a “postponed implementation”, starting to pay for the tax with a delay compared to the non-exempted households. Alternatively, a “graduated exemption” could impose lower tax rates to the most vulnerable groups, which would increase over time.
Structural adjustment assistance consists of monetary payments or in-kind assistance to ensure that households most negatively affected by climate policies can effectively adapt to “the new market conditions” they introduced.
Support can be provided in different forms, such as subsidised energy-efficient, low-carbon technology and other mechanisms (net metering systems, feed-in-tariffs and reduced VAT). In addition, investment in R&D, for instance in the form of investment in new skills, infrastructure and innovation, could also facilitate the transition of specific communities towards a low-carbon economy.
Finally, adaptive support measures include in-kind or financial support to help the most negatively affected groups to “mitigate or adapt to the full range of recognised losses — including non-financial external resources, intrinsically-valued goods, and mental and physical functionings”2.
What role for policy makers in ensuring a Just Transition?
Continuous exchange between EU/national and local/regional levels of governance is essential to ensure that the impacts of climate policies are effectively compensated for. Thus, the establishment and reinforcement of synergies between different governance levels should be sought.
Continuous exchange between EU/national and local/regional levels of governance is essential to ensure that the impacts of climate policies are effectively compensated for.
Suggestions for further reading:
1) Alves Dias, P., Kanellopoulos, K., Medarac, H., Kapetaki, Z., Miranda Barbosa, E., Shortall, R., Czako, V., Telsnig, T., Vazquez Hernandez, C., Lacal Arantegui, R., Nijs, W., Gonzalez Aparicio, I., Trombetti, M., Mandras, G., Peteves, E. and Tzimas, E. (2018), EU coal regions: opportunities and challenges ahead, EUR 29292 EN, Publications Office of the European Union, Luxembourg, doi:10.2760/064809
2) Green, F. (2018), Transition policy for climate change mitigation: who, what, why and how, CCEP Working Paper 1807. Crawford School of Public Policy, The Australian National University
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Team Lead Knowledge Transfer, Sustainable Society Transformation Ramboll Management Consulting
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