Fairness and equity

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.

Excerpted: ‘Why the World Needs a Green Social Contract’

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