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Targeted reimbursement: A fair price for CO2

ANI | Updated: Sep 30, 2022 19:41 IST

Postdam, [Germany], September 30 (ANI): If properly designed, a CO2 tax can be both extremely effective and socially just. This is the conclusion of a new study on Global Commons and Climate Change conducted by the Potsdam Institute for Climate Impact Research (PIK) and the Mercator Research Institute (MCC).
At the heart of the concept is a targeted return of CO2 pricing revenues, particularly to poorer people who require relatively significant amounts of energy but have little control over it. So far, political concerns about social hardship and potential outrage have stymied CO2 price increases.
This study has been published in the Journal of Environmental Economics and Management (JEEM).
"It is crucial that the revenues from CO2 pricing are returned, and in a targeted manner: Distributing them back in shotgun mode is only the second-best solution," explains Martin Hansel, an economist at PIK and lead author of the study.

"It makes the most sense to support the most affected groups with direct transfers. In the study, we identify these particularly affected groups for the first time: Because they are not simply the poorer segments of the population. Rather, within each income group, there are households with very high energy expenditures - people who rely on their cars to drive to work because they live in the countryside, people who have old oil-based heating, tenants with little to no influence on insulation, and so on. These are the groups that the government needs to identify and compensate for. That's the fairest and economically most sensible solution looking at society as a whole," he adds.
According to Max Franks, who is also an economist in Potsdam and author of the study, "Especially in the current crisis, with rising energy costs for everyone, people keep saying that a CO2 price is not politically feasible. Yet the opposite is true, and it is precisely now that we need political control here. Science is long clear that polluting the atmosphere won't stop if it doesn't cost anyone anything. We've now looked at the question of how best to do that, precisely so that it doesn't hit the poor hardest - and we see: There are socially just solutions."
It is not as simple for government agencies to distribute cash payments to persons in need as it may appear. They need to know which families are particularly energy-intensive before they can provide such payments, but they can do very little to change that in the short term.
"There are already ideas here about how that might work. But we also looked at solutions that entail less bureaucracy. It turns out that cash transfers where everyone gets the same amount can do the job if they are combined with moderate support for renewable energies. This policy package lowers energy prices, reduces the number of hardship cases, and ultimately results in a reduction in the unequal burden," says Matthias Kalkuhl, who conducts research on CO2 pricing and tax reforms at the MCC and is co-author of this study.
Ottmar Edenhofer, Director of both PIK and MCC and also the author of the study, says: "For this study, we have broadened the economic view. We are not looking at people on the basis of what they earn, as is usually the case. Instead, we look at how much they are affected by energy price changes. This makes the model we've built very applicable also to the current energy crisis. Because here, too, relief needs to arrive before additional burdens hit the citizens, and the relief needs to come in a targeted way. To achieve this, it is crucial to take people's different starting points into account. Ultimately, we need the CO2 price as a market-based lever to effectively reduce emissions. It won't solve all the problems, but without it, the climate problem cannot be solved." (ANI)