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January 3, 2024

‘Climate dividend’ from carbon revenues could spur just transition, study says

Coal stockpile site Japan
The NAVIGATE study argues that emissions reductions across all sectors of the economy can only be achieved through a combination of producer and consumer-oriented policies (Photo: Tomohiro Ohsumi/Bloomberg)

An annual payment could shield households from the negative impacts of carbon pricing, while also reducing inequality, suggests EU research

The distribution of a climate dividend could overcome the heavy burden of climate policy costs on the world’s population, show the results of a four-year, cross-border policy research project sponsored by the EU.

Work by the NAVIGATE research consortium, consisting of 17 policy institutes, including the University of Oxford and other institutions based across Europe, China and Brazil, focused on how long-term climate goals can be translated into short-term policy action by making use of advanced modelling frameworks that take into account combined data on energy, climate, the economy, land and water over different time periods.

According to the researchers’ calculations, climate benefits are dependent on redistributive policies. By 2030, an equal per capita climate dividend derived from carbon pricing revenues could improve outcomes for 58 per cent of the world’s population under climate policies consistent with a “well-below 2C” trajectory. This figure would increase to 96 per cent of the global population by the end of the century.

Overall inequality would also be reduced in a 1.5C to 2C mitigation pathway, due to the dividend and the avoidance of additional climate damages, the researchers say.

They add that full emissions reductions across all sectors of the economy can only be achieved through a combination of producer and consumer-oriented policies, warning that differences in climate policy across regions and countries are significantly jeopardising a just transition.

“If the differences in climate policy stringency between regions remain large because international transfers are strongly constrained by sovereignty concerns, market distortions can lead to adverse outcomes for sustainability objectives,” says the study.

‘Low-carbon lifestyles’

The researchers name the expansion of bioenergy trade from low to high carbon price countries and the growing need for carbon dioxide removal to offset additional emissions from regions with low carbon prices as key examples of such market distortions.

China and India were singled out as nations whose net zero transition plans display uncertain macroeconomic effects given their status as carbon-intensive, middle-income countries reliant on fossil fuel imports.

The study also looks at the ways policymakers can enable “low-carbon lifestyles” alongside low-carbon technological progress. Changes could include shifts towards less carbon-intensive diets and more equal distribution of food systems, which could then also contribute to food security, biodiversity, sustainable water management and climate goals.

The researchers advise that people with lower incomes could become marginalised if they are not taught about the social benefits of climate action, and that stringent climate mitigation policies impact the income of poorer households more than the income of richer households.

Despite strong climate action benefiting poorer households in the longer term, researchers say additional distribution policies in the near term may be required to ensure a just transition.

The report is available to read here.

A service from the Financial Times