Enhancing fairness in climate action through policy packages

Toon Vandyck (KULeuven)

“Achieving a fair transition to climate neutrality requires a careful balancing of policy options. Here, we quantitatively evaluate the equity implications of different EU climate policy packages, considering pricing, regulation via standards, subsidies, and transfers. Leveraging a modelling framework that combines energy, economy-wide, and household-level modelling, we show that standards limit impact variability within income groups, while carbon pricing with transfer-based revenue recycling offsets regressive impacts between income groups. Simplistic policy implementation with a limited number of instruments therefore gives rise to a trade-off between horizontal and vertical equity, represented as within- and between-group impact variation. We then demonstrate numerically how a multi-instrument budget-neutral policy package can resolve this trade-off. Adopting a broader equity perspective that encompasses both horizontal and vertical equity shifts the preferred policy mix towards a combination of standards, pricing, subsidies, and transfers. These results provide an explicit, quantified, equity-based rationale for the adoption and acceptability of comprehensive climate policy packages, offering a more nuanced view on policy design.”