The Battle to Beat Inequality in the Transition

The energy transition is steeply lopsided between the rich and the poor. The affluent — and affluent nations — are most responsible for causing it, but low-income households — and nations — shoulder the heaviest cost burdens of decarbonization. This mismatch is already impacting policymaking at the national and international levels and is bound to continue doing so, although some are starting to propose solutions that may help even the scales, if only slightly.

Economic research suggests that the richest 10% are responsible for almost half of all greenhouse gas emissions globally, and the top 1% — or less than 100 million individuals — for more than the bottom four billion. This is, of course, related to inequalities between countries, which are large. But those have been narrowing in the past three to four decades as emerging countries were catching up in terms of economic growth while, in contrast, inequality inside countries has been dramatically increasing, says Tancrede Voituriez, co-author of the recent Climate Inequality Report.

The policy and political consequences of this mismatch are far-reaching, since it is difficult to win critical buy-in among all population groups for climate action given the wide disparities. Mounting right-wing protests against environmental policies in Europe and elsewhere have been demonstrating this risk in recent months. Critics argue, for example, that carbon taxes, which many economists see as essential to curbing emissions, can be regressive and end up disproportionately burdening low-income households while allowing richer, high-emitting individuals to continue polluting. These concerns played an important role in the 2018-19 "yellow vest" movement in France. Similar concerns caused national US climate legislation to fail repeatedly.

Likewise, evidence suggests that while electric vehicle purchase subsidies certainly play a big role in spreading the technology, linking them to household income is not only more equitable, but also more effective than offering the same subsidy to all households because low-income households are more responsive to vehicle prices than richer ones. There is also a strong equity argument for counterbalancing vehicle purchase subsidies with a usage tax to replace current gasoline taxes and finance road infrastructure, as most electric vehicles are currently driven by high-income households, researchers from the University of California at Berkeley argue in a recent paper.

Solutions in Sight?

The inequalities are also a frequent sticking point in international climate negotiations and other global dialogues. Generally, "the marginal effort required to achieve the same emission reductions might be significantly lower for high-emitting groups, thereby creating a strong incentive for policies targeted at this group," the Climate Inequality Report emphasizes. The authors suggest creating a "1.5% for 1.5°C" progressive wealth tax on individuals owning over $100 million. It could raise almost $300 billion per year, "more than enough to fill the adaptation gap as reported by the UN Environment Programme."

Beyond national taxation, international cash transfers would also be needed to finance poorer nations' energy transitions. Some economists have proposed this could be done by agreeing on a carbon budget and allocating it among the world population on an equal per capita basis. It would amount, for example, to 2.1 tons of CO2 per year and per person under a 500 billion ton assumption over 2020-50, which would give the world a 50% chance of staying under 1.5°C. Rich countries generating more than that threshold would need to pay poorer ones emitting less to keep releasing CO2.

Deep Disparities

Current emissions amount to 6.6 tons of CO2 equivalent per person and per year, ranging from 1.6 tons in sub-Saharan Africa to 20.8 tons in North America, or from 1.6 tons for the bottom 50% income class to 6.6 tons for the middle 40% and 31.2 tons for the top 10%. In East Asia, the poorest 50% emit on average around 3 tons per year and the middle 40% nearly 8 tons. In contrast, the top 10% emit almost 40 tons/yr, or twice the North American average and four times the European average, and almost 15% of global emissions.

In North America, the bottom 50% emit fewer than 10 tons, the middle 40% around 22 tons and the top 10% over 70 tons of CO2 equivalent. This can be contrasted with Europe, where the bottom 50% emit only 5 tons, the middle 40% 11 tons and the top 10% around 30 tons. Quite strikingly, the poorest half of the US population has emissions levels comparable with the European middle 40%, despite being almost twice as poor. This difference is largely due to the carbon intensity of the energy mix in the US, where power emissions are about twice as high as in the EU, the use of cars is more widespread and devices tend to be less energy efficient.

It is also remarkable that while middle classes collectively emit more CO2 than the top 10% in Europe and North America, extreme wealth inequality causes the rich to emit more in most emerging regions, including the Mideast, Latin America, sub-Saharan Africa and most of Asia. In particular, "investments by wealthy Chinese are associated with significant emission volumes," economist Lucas Chancel notes in a recent paper on the inequality of carbon emissions.

Philippe Roos is a senior reporter and senior analyst at Energy Intelligence. A version of this article originally ran in EI New Energy.