Compensating for Climate Mitigation: can social policies ameliorate the regressive effects?

Date: 3 Oct 2011
Speaker(s): Ian Gough
Venue: London School of Economics and Political Science (LSE)

Part of the ‘Climate Change and Environment Seminar Series: Michaelmas Term 2011’, hosted jointly by the Grantham Research Institute, the Centre for Climate Change Economics and Policy, and LSE’s Department of Geography and Environment

“The lower VAT rate on household energy should be abolished to achieve more uniform carbon taxation, with more targeted tools being used to ameliorate the distributional consequences“

(Bowen and Rydge, Grantham/OECD Report Climate Change Policy in the UK).

This event showed just how difficult such compensation is, yet, without it, popular opposition to climate mitigation could build.

Almost all carbon pricing on domestic energy is heavily regressive, yet compensation via benefits, tax credits and tax allowances always leaves large numbers of low-income losers: people in inefficient dwellings, rural households, under-occupied houses and so on. Other policies need considering, including social energy pricing, taxing second homes, and, of course, much speedier and effective retrofitting of dwellings.

In a second part, this event moved beyond Kyoto production-based emissions to calculate the distribution of the much greater emissions embodied in all household consumption throughout the UK. To tax and compensate these raises further problematic policy issues.

In both cases, closer integration of economic, social and environmental policies is required.