Luca Bettarelli, Davide Furceri, Pietro Pizzuto, and Nadia Shakoor explore the economic implications of climate change policies, especially focusing on the potential burden on households. Their research aims to evaluate the overall effects of public policies related to climate change adaptation and mitigation strategies by analyzing data from 39 developed and developing countries over the period of 1990 to 2020. This study builds on the work of Dinan and Rogers (2002) who discovered that a decrease in CO2 emissions resulting from the European Trading System led to a $500 reduction in income for the lowest-income household in the US, while the top-income decile experienced an average increase of $1000.
The results indicate that climate change policies, especially market-based ones like carbon pricing, contribute to increased income inequality due to distributional costs. In fact, income inequalities appear to be 50% greater with market-based policies, whereas technology support policies do not result in significant adverse effects. The rise in inequality is more pronounced during economic downturns and in countries with a substantial proportion of low-education workers, who initially experience more disparities. However, the study highlights the positive impact of redistribution policies and expansionary fiscal measures aimed at mitigating the adverse effects of climate change policies.
It is crucial for policymakers to carefully consider the timing of implementing green policies. In addition, such policies should be coupled with investment in training programs and education to enhance the skills of low-educated workers, facilitating the reallocation of the labor force to green jobs.
Climate change policies and income inequality – ScienceDirect
