Fair compensation for the green transition

Enrique Flores placeholder image

In recent weeks it has become clear that the path to decarbonizing our economies will not be easy. Despite the fact that the population of advanced countries declares a growing concern about the problems of climate change, protests are multiplying against the increase in energy prices caused by climate policies and in some places the accelerated expansion of renewables is beginning to be discussed . The phenomenon, which is beginning to be felt strongly in Spain, is widespread; as a sample button, the negative result of last Sunday's Swiss referendum on the climate change law, endorsed by almost all political forces. Although there are many factors that explain the disparity between wishes and praxis of the population, undoubtedly the distributional questions (who, apparently,benefit and who bears the costs of the transition) play a key role.

It is surprising that the solution to an essentially distributive problem such as climate change, caused by higher emissions from the wealthiest and suffered by those with the least due to their lesser capacity to adapt (between countries and within each country), ends being hampered precisely by issues of equity. Particularly because we know that the costs of mitigating climate change are modest as a whole, since the appearance of new sectors and activities compensates for the damage to the current productive fabric and, of course, they are far from the immense costs of not facing this problem and other environmental phenomena associated with fossil combustion. What is the stumbling block then? As simple as that these favorable aggregate calculations hide the concentration of costs in specific groups,of certain territories, activities or income levels.

It is also surprising that we find these stones along the way precisely at the exit of the pandemic crisis, which was supposed to be

green.

. Or not: at this moment, the wounds of the coronavirus are coming together, which, once again, has affected those who have the least the most, with an intensification of climate policies that makes it possible to meet the ambitious goals agreed in Paris in 2015. We are, at last, going from words to deeds and therefore the disruptions associated with a process of structural change begin to manifest. Unfortunately, the margin of maneuver to face the climate problem and achieve the agreed objectives is becoming smaller and smaller and now paralyzing the corrective policies that facilitate the transition, something that we have seen in Spain for too long, is not an option. It is not from an environmental, economic, or social equity point of view.We cannot allow the snowball to grow larger and make it impossible to manage it at reasonable socio-economic costs.

In this context, how to design a roadmap that safeguards the transition and is socially acceptable? First, taking advantage of the favorable tail wind: climate mitigation alternatives - renewables implemented in an orderly and sustainable way, batteries or energy efficient products - are becoming cheaper. In addition, the major economies of the planet are beginning to align their efforts in the fight against climate change and this will limit the harmful effects on competitiveness. Second, it is essential to minimize the costs of climate policy in order to reduce its distributional costs as well. We know that decentralized options, such as carbon prices, are highly cost-effective and that is why we must continue to bet on them.

However, the distributive Gordian knot remains intact and will impede progression if we do not take additional measures. It is probably necessary, in the first place, to abandon the pink story of the energy transition and make it clear to the public that it will be a path full of obstacles to reach a substantially better situation in the medium and long term. It should be emphasized, in this sense, that the economic and distributional impacts of not acting now will be very negative. Second, to be able to travel this stony path, it will be necessary to immediately design and apply compensatory distributive measures for those most affected by the decarbonization process. From my point of view, these measures must have several characteristics: they must preserve, not hinder, the corrective action of climate policy;they must focus exclusively on the most vulnerable (territories, sectors and income groups); and they must be capable of fully reversing the negative effects in the short term and of solving the distributional problem in the medium term.

It makes no sense, therefore, to delay the progress of the transition by keeping the prices of energy products artificially low, particularly fossil fuels, to protect those who have the least. Firstly, because this prevents the changes in behavior and investment necessary for the climate correction from being adopted, further adding to the snowball I referred to earlier. As if that were not enough, these crude measures end up benefiting, with the excuse of protecting certain social layers, those who have the most due to their high energy consumption. Precisely for this reason, generalized compensatory strategies, of

coffee for all

,

do not make sense

, and it is urgent to be very selective in their application. Among them, what we could call a

green check stands out

, a monetary amount that serves to fully compensate only certain groups for the extra costs caused by the action of climate policy without undermining the incentives for energy efficiency or the change of fuels.

In this case we are faced with sophisticated, personalized measures that today we could define and implement without too much difficulty in a country like ours.

The

green check

it would serve to reconcile an effective climate policy with the protection in the short term of those especially harmed by the transition. But to solve the distributional problems in the medium term it would be necessary to act decisively on the origin of the effects: the equipment. Many affected groups find it difficult to react to the impacts of the transition because they do not have the means to renovate, for example, their vehicle or heating system. Unfortunately, the current public programs for the replacement of equipment can be clearly improved in coverage and intensity. It is not the time for general approximations that, again,They end up benefiting those who need it least and whose environmental effectiveness is debatable because many of the beneficiaries would have accessed the new equipment without this aid. However, by concentrating these programs on certain sectoral, territorial or income level groups, and covering a large part of the cost of changing equipment, we would be able to truly tackle the distributional impacts of climate policies in the medium term. Let us not forget, moreover, that these policies would have a considerable drag effect on the new green sectors, generating new jobs, and would further reduce the cost of clean technologies. In short, a virtuous circle.and by covering a large part of the cost of changing equipment, we would be able to truly tackle the distributional impacts of climate policies in the medium term. Let us not forget, moreover, that these policies would have a considerable drag effect on the new green sectors, generating new jobs, and would further reduce the cost of clean technologies. In short, a virtuous circle.and by covering a large part of the cost of changing equipment, we would be able to truly tackle the distributional impacts of climate policies in the medium term. Let us not forget, moreover, that these policies would have a considerable drag effect on the new green sectors, generating new jobs, and would further reduce the cost of clean technologies. In short, a virtuous circle.

It is time, finally, to give our climate policies an acceleration and a swerve.

We must continue to increase their intensity and simultaneously dedicate abundant public resources, which may come from the application of these policies, to reduce their distributional impacts in a selective and resounding manner.

Xavier Labandeira

is Professor of Economics at Ecobas-University of Vigo.