CO2 pricing pushes social inequality especially through heating costs, needs compensation – analysis
Clean Energy Wire
The energy transition is placing an uneven financial burden on Germany‘s poorest households – and transition costs related to heating are impacting these citizens much more than in other sectors such as transport, an analysis by the Kiel Institute for the World Economy (IfW) has found. “The decarbonisation of the German economy comes with significant disruptions. These often disproportionately affect low-income households, as they cannot afford to make the adaptations needed in areas particularly affected by price rises,” the IfW said.
The country’s progressive carbon pricing system, which is on track to become fully integrated in the European Emission Trading System (ETS) in the coming years, is expected to have the greatest direct financial effects on citizens in the transport and heating sectors. “People who use fossil fuels for heating and transportation will be most affected,” the researchers said, adding that carbon pricing would most likely aggravate financial inequality in society if no effective balancing mechanisms are adopted.
Adopting the ‘climate bonus’ compensation scheme that the outgoing government failed to implement during its term “could alleviate the situation,” the IfW said. However, the scheme alone would be insufficient for enabling poorer households to take part in the transition. More targeted support programmes would be needed to keep low-income households afloat and the infrastructure for the transition towards climate friendly alternatives be provided by the state, the researchers argued.
