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Climate policies are likely to impact harder on the low income population in the short term, unless they are accompanied by targeted mitigating measures. A new study conducted by Eurelectric, with the scientific contribution of the Enel Foundation, outlines several remedial solutions that could be considered to cushion the effects on vulnerable households, while ensuring sustainable growth for the benefit of all.
The COVID-19 pandemic has triggered an unprecedented economic crisis and prompted a potential 7% decrease of the EU GDP. As a consequence, the massive risks of a protracted recession and unemployment are likely to affect the population, leading to an increase of structural inequalities. As the climate emergency was not put on hold by the current crisis, a socially just and inclusive energy transition is paramount for bringing citizens on board, and alleviating possible negative effects while enhancing the positive ones, especially on low-income population.
“Mitigating the negative social impacts from climate policies is essential to ensure broad support for the energy transition. This new study shows that negative effects can be offset with targeted policies and gives concrete examples of policies that can be considered for this purpose,” said Magnus Hall, Eurelectric’s President.
By analysing concrete policies already implemented by administrations across the world, the study presents the key measures that can fully offset the regressive effects of climate policies, paving the way for a successful energy transition.
First, the study finds that well planned and adequately financed long-term retraining programmes can offer concrete options for workers, thus combating the unemployment related to the transition. Similarly to the Scottish Transition Training Fund, which supported the reskilling of workers from the oil and gas sectors, the EU Just Transition Fund can be a key mitigating tool to address an asymmetric job shift, particularly in the coal regions.
Second, compensation funds, in the form of lump-sum transfers or tax reductions, are a viable action to reduce the burden on population. The study identified that a lump-sum direct rebate option, recycling the revenues from key decarbonisation policies—including carbon pricing and fossil fuel taxes—would see an average sum of €260 going to households across the EU every year. With this amount, the dispensable income of the badly-off households will increase by 4.2%, and by 0.8% for richest.
Lastly and very importantly, energy efficiency support schemes directed to households will improve citizens’ standard of living, while reducing the energy use and costs. Through the Renovation Wave, the EU has an opportunity to break the barriers to the uptake of energy efficient and low-carbon solutions. Our study finds that by 2050 the annual financing required for the uptake of energy efficiency measures amounts to € 1-3 billion for the EU as a whole.
“The new normal for all systems is characterised by climate change and rising inequality, lately magnified by the effects of COVID-19 crisis. We need to seize the moment and bounce back stronger thanks to an inclusive energy transition reinforced by a well-balanced package of decarbonisation policies. This study shows that it is certainly possible and of paramount importance for all.” , said Mr Carlo Papa, Managing Director of the Enel Foundation.
Note to Editors:
- The study “E-quality: shaping an inclusive energy transition” was carried out with the scientific contribution of the Enel Foundation, and analytical support from Guidehouse and Cambridge Econometrics.
- Methodology: The study uses modelling and lessons learnt from case studies, testing the possibility to off-set the negative effects of six decarbonisation policies aiming at 95% CO2 emissions reduction by 2050; It looks into the macro-regional impact of each policy on the economy (GDP), on jobs and on households income in 2050.
- The six decarbonisation policies analysed were: 1. carbon pricing, 2. taxation of energy vectors, 3. emission performance standards, 4. subsidies for low carbon technologies, 5. phase out of fossil fuel subsidies and 6. energy efficiency measures.
- Four mitigating options were selected: These are: long-term job-retraining programmes, 2. reduction of taxes/ VAT/ taxes on electricity bill or lump-sum transfers on a per head basis, 3. targeted energy efficiency schemes, with a focus on low-income households, 4. fund subsidies for low carbon technologies.
Eurelectric represents the interests of the European electricity industry. With members in over 30 European countries, we speak for more than 3,500 companies in power generation, distribution and supply. In line with our mission, we seek to contribute to the competitiveness of our industry, provide effective representation in public affairs and promote the role of electricity in the advancement of society.
Enel Foundation is non-profit organisation focusing on the crucial role of clean energy to ensure a sustainable future for all. By developing partnerships with pre-eminent experts and institution across the globe, leveraging on the vast knowledge of its founders, Enel Foundation conducts research to explore the implications of global challenges in the energy domain and offers education programs to the benefit of talents in the scientific, business and institutional realms.