It’s time for a green social contract

The green transformation will have far-reaching socio-economic implications. Action is needed to ensure domestic and international social equity and fairness.

By: Date: April 12, 2021 Topic: Green economy

This opinion piece was originally published in Corriere Della Serra, La Croix, El Economista and The Guardian‘s This is Europe series.

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As a climate policy researcher, I am often asked: what is the biggest obstacle to decarbonisation? My answer has changed profoundly over the last couple of years. Before, I used to point to a complex combination of a lack of cost-competitive green technologies and an absence of political will. Today, I point to something else. Something less tangible, but possibly more challenging: the absence of a green social contract.

The green revolution is already unfolding, driven by a stunning reduction in the cost of green technologies and by a global momentum for climate neutrality by mid-century. So, one might ask: as cheaper green technology and unprecedented political green ambition rapidly converge, what could possibly go wrong? Unfortunately, the situation is not as simple as it seems. The more it advances, the more decarbonisation will reshape our economies and impact our lifestyles. Nothing will be left untouched in the process: the green world will be profoundly different from the one we know today.

Such a radical transformation will also raise questions about who should bear the cost of climate action, both within countries and between countries. This will draw attention to the necessity of ensuring that the cost of climate action does not disproportionally fall on the most vulnerable, exacerbating inequality. Climate action should, in fact, be designed in a way that improves social equality. And this is precisely what a new green social contract should be about.

The French experience with the so-called “Yellow Vests” movement represents the clearest example of the perils and political headwinds that governments worldwide may face as they try to wean their citizens off fossil fuels. Climate policies should be introduced in tandem with compensation mechanisms to cushion the blow for the most vulnerable. This is exactly what a group of economists including 28 Nobel laureates and four former Federal Reserve chairs – among them Janet Yellen – have been calling for in the United States: the introduction of a robust carbon tax, together with a compensation system to return all the revenue to citizens through equal lump-sum rebates, to ensure that the most vulnerable benefit financially by receiving more in “carbon dividends” than they pay in increased energy prices. This discussion, illustrating how equity and fairness considerations have to be built into the design of climate policies, represents the domestic dimension of the green social contract we need to develop.

Such equity and fairness considerations go well beyond national boundaries. As developed countries scale-up domestic climate actions, they will likely introduce measures – such as carbon border taxes – to ensure that their industries do not suffer uneven competition from competitors based in countries with weak climate policy. Already in the initial stages of development in the European Union, the introduction of such measures was also pledged by Joe Biden during the campaign. Boris Johnson is now considering using his G-7 presidency to try to forge an alliance on carbon border taxes. But the introduction of carbon border taxes could impact the economies of the poorest countries. As with domestic carbon taxes, this problem can be prevented by taking into consideration equity and fairness in the design of the measures. One option would be to simply exempt the poorest countries from border charges. This discussion should be at the core of the international dimension of the new green social contract.

Thanks to green tech developments and political momentum, the world finally has a chance to reverse its failure to tackle climate change. We now need to make sure that climate action is designed in a way that improves social equality. Policy solutions exist, but they require proper debate and careful implementation. At the domestic level, countries can learn from France, which reacted to the “Yellow Vests” crisis with the launch of the Citizens’ Council on Climate – an experiment in direct democracy aimed at identifying solutions to foster decarbonisation while ensuring social equity and fairness. At the international level, this can be done by putting climate equity and fairness at the core of the forthcoming U.N. climate talks in Glasgow. Such actions are fundamental to ensure long-term social support for the green transition, and to prevent its derailing – which would have catastrophic consequences for the planet. The time for a new green social contract is now.

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