As the world begins to slowly take climate change more seriously, the introduction of low-carbon policies is becoming more widespread. While there is growing public support for such measures, a new study from the University of Cambridge reminds us that the impact may be significant on poorer families and small businesses, who may be less able to cope with short-term cost increases.
The authors remain optimistic, however, and suggest that a menu of policies can be created so that small businesses and low-income families can be supported as society moves towards “Net Zero”.
The researchers examined thousands of previous studies that had explored the various low-carbon policies used around the world to understand how they perform in terms of competitiveness and cost. The analysis fed into an interactive online tool developed by the team to allow people to explore the evidence around carbon-reduction policies used around the world.
Carbon reduction
“Preventing climate change cannot be the only goal of decarbonisation policies,” the researchers say. “Unless low-carbon policies are fair, affordable and economically competitive, they will struggle to secure public support – and further delays in decarbonisation could be disastrous for the planet.”
The researchers honed in on ten policy instruments that were most commonly used alongside a range of financial incentives, such as taxes and subsidies. These interventions include various market-led interventions, such as emissions permits and efficiency standards for products and buildings.
The aim was to understand both the positive and negative impact each of these instruments had on the environment, on the economy, and on other socio-economic areas. For instance, were the costs and benefits of the policies fairly distributed?
“Small firms and average households have less capacity to absorb increases in energy costs,” the researchers explain. “Some of the investment and regulatory policies made it harder for small and medium-size firms to participate in new opportunities or adjust to changes.”
Resistance to change
If the policies are not designed well and vulnerable households are negatively impacted, it can increase public resistance to change, which can, in turn, hamper any attempts to reach net zero.
The researchers highlight, for instance, how feed-in tariffs that are designed to pay renewable energy producers higher than market rates for the electricity they produce can increase energy costs for poorer households.
Indeed, they cite evidence that when renewable energy is traded as “green certificates” this redistributes wealth from consumers to the energy firms themselves, with most evidence suggesting they have a negative impact. Similarly, energy taxes can have a significant impact on rural areas.
Complementary policies
If designed in the right way, however, these policies can be complementary to one another and boost innovation as well as ensuring a fair transition to a zero-carbon economy.
For instance, if feed-in tariffs are structured to be predictable and adjustable, they can benefit smaller and more dispersed clean energy projects, which would help to mitigate local NIMBYism while also improving market competitiveness.
What’s more, the researchers argue for any revenue from environmental taxes to go on tax credits or social benefits that could help small firms and disadvantaged families. This would help stimulate local economies while also reducing emissions.
Striking the balance
The key, they argue, is to strike the right balance with well-designed policies that can benefit renewable energy producers and clean technologies at various stages of their lifecycle.
The researchers also highlight how government procurement can play a role in encouraging innovation while also providing market access for smaller firms, especially in economically depressed areas. Combined with explicit government funding for R&D to help smaller firms could help to boost eco-innovation and competitiveness.
“There is no one-size-fits-all solution,” the researchers conclude. “Policymakers should deploy incentives for innovation, such as targeted R&D funding, while also adapting tariffs and quotas to benefit those across income distributions.
“We need to spur the development of green technology at the same time as achieving public buy-in for the energy transition that must start now to prevent catastrophic global heating.”
