• Tue. Oct 26th, 2021

Managing the political economy of climate change policies – Analysis – Eurasia Review

ByChris J. Taylor

Aug 8, 2021

Few issues have garnered more attention than how to avoid environmental and human disaster of climate change. But even following massive public protests and an ambitious agenda since the 2015 Paris Agreement, governments are wary of the political costs of adopting climate change mitigation policies.

During the last IMF staff research, we identify strategies that can minimize or even eliminate such challenges.

In the first such analysis, we combined information on the political consequences (popular government support) of policy changes with information on the policy changes themselves in a sample of 31 OECD countries. Our data on political support comes from the International Country Risk Guide of the private consultancy firm PRS Group.

We have found that climate change policies, in particular market-based measures, such as a carbon tax on fossil fuels, which are most effective in limiting pollution levels, are likely to run into pressure. opposition not only from energy-consuming industries, but also from the general public. .

Our new research suggests, however, that these costs can be avoided if the design of mitigation policies takes into account political economy dimensions and if complementary policies are deployed to protect vulnerable households (for example, as proposed in IMF research) who could lose in the short term in the transition to a greener economy:

  • To the extent that higher carbon taxes have a greater negative impact on the poorest segments of the population, governments need to closely monitor how mitigation policies may affect inequalities. The political costs are negligible when income inequality is held in checkeither through the design of mitigation policies themselves, or through the adoption of complementary policies that protect the poor and enable them to bounce back from the upheavals inflicted by rising carbon prices. On the other hand, when inequality increases, our results suggest that these costs will tend to be high.
  • Provide social protection to the poor and / or workers whose jobs are threatened is also essential. Our the results show that political costs are reduced when social safety nets are extended to provide insurance against dismissal risks and active labor market policies are extended to give displaced workers a fair chance.
  • Advance mitigation policies in period of low oil prices is also beneficial, as people will suffer less from higher carbon prices when energy is cheap. The industrial base structure Another consideration is that economies with a large industrial base reliant on dirty energy inputs (such as coal) will have more difficulty mobilizing support for mitigation and are likely to experience a more negative political impact. The diversification of the industrial base can thus help to facilitate climate change mitigation policies.

Our research also suggests that options that may be the last resort from an economic efficiency perspective often have more political appeal, provided they are accompanied by transparent cost analysis and advantages. For example, we find that non-market-based instruments, such as emission limits on power plants and government subsidies and investments in research and development, tend to be more acceptable to voters.

Climate change will remain the defining global challenge of our time. As with all policies that generate winners and losers, environmental legislation requires public support to be sustainable. Our research identifies key lessons to help build such support and use the current crisis as an opportunity to move forward low-carbon, climate-resilient economic growth.

* About the authors:

  • Davide Furceri is Deputy Division Chief of the Regional Studies Division of the IMF’s Asia and the Pacific Department.
  • Jonathan D. Ostry is Deputy Director of the Asia and Pacific Department of the International Monetary Fund and a researcher at the Center for Economic Policy Research (CEPR).

Source: This article was published by IMF Blog

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