Editing IPCC:AR6/WGIII/Chapter-4 (section)

==== 4.2.6.4 Mitigation and Equity in the Near and Mid-term ====

<div id="h3-28-siblings" class="h3-siblings"></div>

Climate mitigation may exacerbate socio-economic pressures on poorer households ( [[#Jakob--2014|Jakob et al. 2014]] ). First, the price increase in energy-intensive goods and services – including food ( [[#Hasegawa--2018|Hasegawa et al. 2018]] ) – associated with mitigation may affect poorer households disproportionally (Bento 2013), and increase the number of energy-poor (Berry 2019). Second, the mitigation may disproportionally affect low-skilled workers (see previous section). Distributional issues have been identified not only with explicit price measures (carbon tax, emission permits system, subsidy removal), but also with subsidies for renewables ( [[#Borenstein--2016|Borenstein and Davis 2016]] ), and efficiency and emissions standards ( [[#Davis--2019|Davis and Knittel 2019]] ; [[#Bruegge--2019|Bruegge et al. 2019]] ; [[#Levinson--2019|Levinson 2019]] ; [[#Fullerton--2019|Fullerton and Muehlegger 2019]] ).

Distributional implications, however, are context specific, depending on consumption patterns (initially and ease of adjusting them in response to price changes) and asset ownership (see for example analysis of energy prices in Indonesia by Renner et al. 2019). In an analysis of the distributional impact of carbon pricing based on household expenditure data for 87 low- and middle-income countries, [[#Dorband--2019|Dorband et al. (2019)]] find that, in countries with a per-capita income of up to USD15,000 per capita (purchasing power parity (PPP) adjusted), carbon pricing has a progressive impact on income distribution and that there may be an inversely U-shaped relationship between energy expenditure shares and per-capita income, rendering carbon pricing regressive in high-income countries, in other words, in countries where the capacity to pursue compensatory policies tends to be relatively strong.

The literature finds that the detailed design of mitigation policies is critical for their distributional impacts ( ''robust evidence'' , ''high agreement'' ). For example, [[#Vogt-Schilb--2019|Vogt-Schilb et al. (2019)]] suggest to turn to cash transfer programs, established as some of the most efficient tools for poverty reduction in developing countries. In an analysis of Latin America and the Caribbean, they find that allocation of 30% of carbon revenues would suffice to compensate poor and vulnerable households on average, leaving the rest for other uses. This policy tool is not only available in countries with relatively high per-capita incomes: in Sub-Saharan Africa, where per-capita incomes are relatively low, cash transfer programs have been implemented in almost all countries (Beegle et al. 2018, p. 57), and are found central to the success of energy subsidy reforms ( [[#Rentschler--2017|Rentschler and Bazilian 2017]] ). In the same vein, Böhringer et al. (2021) finds that recycling of revenues from emissions pricing in equal amounts to every household appeals as an attractive strategy to mitigate regressive effects and thereby make stringent climate policy more acceptable on societal fairness grounds. However, distributional gains from such recycling may come at the opportunity cost of not reaping efficiency gains from reductions in the taxes that are most distortionary (Goulder et al. 2019).

Distributional concerns related to climate mitigation are also prevalent in developed countries, as demonstrated, for instance, by France’s recent yellow-vest movement, which was ignited by an increase in carbon taxes. It exemplifies the fact that, when analysing the distributional effects of carbon pricing, it is not sufficient to consider vertical redistribution (i.e., redistribution between households at different incomes levels but also horizontal redistribution (i.e., redistribution between households at similar incomes which is due to differences in terms of spending shares and elasticities for fuel consumption). Compared to vertical redistribution, it is more difficult to devise policies that effectively address horizontal redistribution (Cronin et al. 2019; [[#Pizer--2019|Pizer and Sexton 2019]] ; [[#Douenne--2020|Douenne 2020]] ). However, it has been shown ex post that transfer schemes considering income levels and location could have protected or even improved the purchasing power of the bottom half of the population ( [[#Bureau--2019|Bureau et al. 2019]] ). Investments in public transportation may reduce horizontal redistribution if it makes it easier for households to reduce fossil fuel consumption when prices increase (see Sections 4.4.1.5 and 4.4.1.9). Similarly, in relation to energy use in housing, policies that encourage investments that raise energy efficiency for low-income households may complement or be an alternative to taxes and subsidies as a means of simultaneously mitigating and reducing fuel poverty ( [[#Charlier--2019|Charlier et al. 2019]] ). From a different angle, public acceptance of the French increase in the carbon tax could also have been enhanced via a public information campaign could have raised public acceptance of the carbon tax increase ( [[#Douenne--2020|Douenne and Fabre 2020]] ). (See [[#4.4.1.8|Section 4.4.1.8]] for a discussion of this and other factors that influence public support for carbon taxation.)

<div id="4.2.7" class="h2-container"></div>

<span id="obstacles-to-accelerated-mitigation-and-how-overcoming-them-amounts-to-shifts-in-development-pathways"></span>