Raising the cost of energy and carbon is regressive and difficult to compensate

I went yesterday to Professor Ian Gough’s talk at the LSE on the potential tensions between climate change policy and more traditional (welfare state) policies: Climate Mitigation Policies, Distributive Justice and Social Policies. He is working on a two year ESRC grant which looks at climate change and social policy, trying to rethink the political economy of the welfare state. I found his talk extremely interesting and very relevant to our work – he focused on trajectories to 2050 in the context of government’s current targets (34% reduction in gas emissions by 2020), looking at both private (from households) and public (from welfare services such as NHS and education) contributions as well as direct (coming from production or direct consumption of energy) and indirect (coming from embodied energy) CO2 emissions.

After setting out some general facts, predictions and dilemmas, he concentrated on the UK and its ambitious targets for carbon cuts in the 2008 Climate Change Act. He then posed two questions. First, he asked whether the necessary climate mitigation policies threaten state funding for traditional social policies. The current answer to this question was ‘no’: climate mitigation was to be achieved using ‘mandated market’ mechanisms and the direct impact on public finances was tiny. Second, he asked what the likely distributive consequences of climate mitigation programmes were. The evidence to date was clear that the impact was to be regressive and that it was difficult to compensate low income losers. However, all analysis thus far has concentrated on households’ direct emissions stemming from fuel, electricity and petrol, which account for only 20% of the total. He then presented new analysis of all emissions, including those embodied in the consumption of food, consumables, private services, public services and imported goods. The analysis showed that income was the main driver, with household type and employment status also significant. Again, however, emissions per pound of income were regressive, falling as income rose. Thus all conceivable programmes to raise the cost of energy and carbon were to be regressive and difficult to compensate.

Finally, he considered two alternative policies: personal carbon allowances and a big programme of ‘eco-social investment’. These appeared to be the only viable alternatives. However, they have their limitations, would challenge traditional social policy goals and engender severe fiscal competition with the traditional welfare state.

Catalina Turcu, UCL