Justice and income effects of climate policy

As the Netherlands transitions to climate-neutral energy systems in the future, costs are set to soar. In the period through to 2050 we estimate that costs will be around € 20 billion per annum on average: a combination of the cost of reducing carbon emissions and government taxes on these emissions. Costs will rise from € 5 billion in the current situation to a little less than € 40 billion in 2050. As climate policy is configured today, low-income households spend a little over 5% of their expendable budget on climate-policy-related costs. This is around 3.5 times as much as high-income households. If these costs continue to be allocated according to today’s climate policy configuration, low-income households will eventually be spending over 17% of their expendable income on the costs of climate policy – an unacceptable burden for such households. To avoid this situation there will need to be a change in the set-up of climate policy.

An equitable form of climate policy could comprise the following elements:

  • the polluter pays: small and large consumers pay the same per tonne CO2
  • the lowest-income groups are compensated for their energy-related tax burden, via a fixed rebate per household or via income tax, for example
  • compensation for industries unable to pass on high energy costs to consumers
  • any subsidies benefit all income groups equally.

As a follow-up study, it was investigated Who gains from climate policy?