Workshop "Distributional effects, fairness and acceptability of climate policy", April 2021

On April 23rd 2021 the CHIPS project organized an Expert Workshop on the topics of distributional effects of climate policy, and on fairness and acceptability. Invited presenters were Thomas Sterner, University of Gothenburg, Bjoern Soergel, PIK, Hans Wijkander, Stockholm University, Ulrike Kornek, Kiehl University, Jens Ewald, University of Gothenburg and Julius Andersson, Stockholm School of Economics. Presentations were followed by general discussions, led firstly by Hans Wijkander and secondly by Linus Mattauch, Technical University of Berlin. The idea was to present results as well as ideas from the CHIPS project to stakeholders and experts to discuss and receive feedback on the way forward.

Please click here to see the workshop agenda.

Thomas Sterner presented his idea “Inflation rates at household level during the pandemic and their effects on consumption and inequality”, co-developed with José Labeaga and Jens Ewald. As the use of one single inflation rate risks being misleading when consumption patterns differ between groups of consumers, the approach estimates household level inflation and inflation by groups of goods. The authors plan to estimate the effect of Covid-19 on such more individualized levels of inflation in order to understand the pandemic’s effect on inequality and poverty.

Bjoern Soergel presented his Nature Communications paper “Combining ambitious climate policies with efforts to eradicate poverty”, co-written with Elmar Kriegler, Benjamin Leon Bodirsky, Nico Bauer, Marian Leimbach & Alexander Popp. The paper investigates long-term effects of climate mitigation policy on the evolution of the number of poor globally, and finds that in the absence of progressive redistribution, such policy would heavily increase the number of people in extreme poverty by 2030. National redistribution of collected tax revenues and an international redistribution scheme, however, can counteract this negative effect.

Hans Wijkander commented on distributional aspects in calculating a consumer price index, and discussed different indices for measuring the consumer price index, as well as provided a discussion and analysis of disadvantages with the indices and how inflation rates vary according to expenditure patterns. These expenditure patterns are different between demographic groups, a difference that perhaps merits adjustment to how CPI is measured.

Jens Ewald presented his paper “Understanding the resistance to carbon taxes”, co-written with Erik Sterner and Thomas Sterner. The paper delves deeper into the reasoning behind “Sweden’s yellow vests” through a survey study on the Swedish Bensinupproret 2.0, as well as surveys Sweden’s general opinion on carbon pricing.

Linus Mattauch gave an illuminating discussion of general issues with public support of taxes, and how the Pigouvian aspect of e.g. carbon taxation is not intuitive. More has to be done to reach the voters who mistrust governments and science. Lastly, the economists’ arguments of efficiency and equity are not how most people see the world.

Ulrike Kornek presented her paper “Understanding Regressivity: Challenges and Opportunities of European Carbon Pricing”, co-written with Simon Feindt, José Labeaga, Thomas Sterner and Hauke Ward. The paper finds that carbon taxes are progressive at national but regressive an aggregate EU level, due to how a common EU carbon price would impact low-income countries. The paper also investigates policies for redistribution.

Finally, Julius Andersson presented his paper “The Distributional Effects of a Carbon Tax: The Role of Income Inequality”, co-written with Giles Atkinson. The paper targets the issue of whether inequality matters for the regressivity or progressivity of a carbon tax. The authors give descriptive evidence that the regressivity of the Swedish tax has increased in tandem with increased income inequality. Likely, they argue, carbon taxes will be more regressive the more unequal the income distribution.

The presentations were followed by interesting feedback and discussions on methodology and ways forward for policy research. One option to increase acceptability is to change the framing, away from a tax to calling it a “carbon contribution” – or the other way around - a “climate sin payment”. It is also important to clearly show and communicate that carbon taxes do achieve their goals by actually reducing emissions. At the same time, it is important to increase research into why the public perception is so different and negative. Here, many questions remain open.

Another important comment focused on the typical aggregation of households by income deciles which might be misleading due to very different expenditure patterns. A better option would be to group by circumstances (e.g. families, retirees) or level of vulnerability. An important issue for further research is the question of how the increase in inequality caused by COVID will affect both the impacts of climate and interact with effects of climate policy.

We thank all of the presenters, discussants, and participants for a very fruitful seminar.