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Towards COP28 and beyond: Advocating for a Climate Dividend in Europe

Towards COP28 and beyond: Advocating for a Climate Dividend in Europe
 Joseph Dellatte
Resident Fellow - Climate, Energy and Environment
 Sven Rudolph
Policy Advisor for Climate and Energy Policy

The European Union (EU) wants to chart a new course toward a more environmentally sustainable future and has adopted new initiatives, like the Fit-for-55 climate package, to deliver on its ambition. These policies are wide-ranging and extend far beyond the continent's borders with potential dividends for Europeans and developing countries at the forefront of climate change. Against the backdrop of an increasingly challenging international climate governance regime and the looming COP28, the EU has the opportunity to shape the discourse on a global scale. As Nations gather in Dubai, the EU's emphasis on redistributive justice, through a climate dividend, could offer a viable and replicable framework for fostering collaboration and shared responsibility, in the face of the urgent and interconnected challenges posed by climate change. 

This paper originates in a collective research project on carbon pricing revenue recycling held by Joseph Dellatte, Resident Fellow for climate, energy, and environment at Institut Montaigne, Sven Rudolph, Scientific Advisor to the Institute for Church and Society of the Protestant Church of Westphalia, Germany, Elena Aydos, Senior Lecturer at the University of Newcastle Law School, Australia, and Takeshi Kawakatsu, professor for Public Finance at Kyoto Prefectural University, Japan.

Making the EU ETS more just and politically palatable

The EU has emerged as a global leader in climate action. The European Union Emissions Trading Scheme (EU ETS) has been a cornerstone of these efforts, serving as a cap-and-trade system, aimed at incentivizing industries to reduce their carbon footprint. The Fit-for-55 climate package wants to go further by introducing ambitious measures, such as the EU ETS 2, for transport and buildings, and the Carbon Border Adjustment Mechanism (CBAM). But what are the social justice implications of these policies?

Climate change is a complex challenge that intersects with social and economic factors. As we transition to a low-carbon economy, it is imperative to consider the distributional impact of climate policies. Traditional approaches have often allocated revenue generated through carbon pricing to climate-related projects and initiatives.

As we transition to a low-carbon economy, it is imperative to consider the distributional impact of climate policies.

This has proven critical in financing industry transition and crucial technology development (E.g. Clean hydrogen). Yet, today, there is a growing chorus advocating for a more direct approach - the redistribution of a major portion of the EU ETS's revenues directly to the people.

Equally sharing the proceeds from carbon pricing

At the heart of this proposition is the concept of an equal per capita climate dividend. This entails redistributing a major share of the carbon pricing revenues from ETS 1, and particularly ETS 2, directly to individuals on an equal per capita basis. As the costs associated with carbon pricing are inevitably passed on to consumers, there is a recognition that these costs may disproportionately affect lower-income households. A direct dividend, distributed equally among citizens, serves to mitigate the regressive impact of carbon pricing, providing financial relief to those who may bear a heavier burden in the transition to a low-carbon economy, while also supporting green market creation.

The equal per capita climate dividend is not merely a theoretical construct; it is a pragmatic solution to address social and economic disparities. By directly involving citizens in the benefits of carbon pricing, it fosters a sense of shared responsibility and collective ownership of the climate transition. Moreover, it enhances the political palatability of climate policies, garnering greater public support for measures that are often met with skepticism because of fears of how they will impact individual choices.

Implementing such a dividend aligns with broader principles of social justice and democratic values. It ensures that the benefits of environmental policies are not concentrated in the hands of a few but are shared by the entire citizenry. It could also act as a powerful tool for social cohesion, demonstrating that the pursuit of environmental sustainability is intertwined with the pursuit of social justice.

Implementing such a dividend [...] ensures that the benefits of environmental policies are [...] shared by the entire citizenry.

Using CBAM revenues to enhance international climate finance and carbon pricing 

Similarly, extending the rationale of the Climate Dividend internationally can be achieved by leveraging the revenues generated from the Carbon Border Adjustment Mechanism (CBAM). The European Union is not only utilizing CBAM as a tool to address carbon leakage domestically but is also strategically positioning it as a means to propagate its climate policy model, inclusive of global carbon pricing initiatives. Allocating CBAM revenues to bolster mitigation and adaptation actions in less developed countries engaged in trade with Europe could serve a dual purpose. Primarily, it would underscore the EU's dedication to global climate justice, showcasing its reliability as a partner for Southern countries. Furthermore, this proposed "CBAM Dividend" could incentivize our trading counterparts to adopt comparable carbon pricing mechanisms, fostering a more interconnected and just global approach to addressing climate change.

Embracing this strategy would reinforce the principles of "CBAM Diplomacy" and the Climate Club, two pivotal focal points for Europe. This approach seeks to establish binding instruments for emissions control beyond our borders, fostering collaboration with our global partners. Beyond the financial considerations for the EU and its businesses, the "CBAM Dividend" holds political significance by supporting the environmentally responsible transformation of our industries. Achieving this transformation necessitates international collaboration, such as facilitating access to affordable green hydrogen imports, and aligning our international trade to the climate objectives by promoting the acceptance of binding measures among our developing partners.

But challenges remain…

The road to implementing an equal per capita climate dividend is fraught with challenges. Questions of funding the energy transition (where to find the additional money needed?), navigating institutional preconditions (at the EU and Member States level), and ensuring the simplicity of the redistribution scheme are legitimate concerns. 

It would spark a crucial, and much needed, dialogue on the intersection of climate action and social justice. 

However, it would spark a crucial, and much needed, dialogue on the intersection of climate action and social justice. Part of the resistance to ambitious climate policies comes from the society itself. We must strive for solutions that are not only environmentally effective but also socially just.

The EU has an unprecedented opportunity to redefine the narrative around climate action. The equal per capita climate dividend is a practical and ethical step toward a more inclusive and equitable transition. By placing individuals at the center of climate policy benefits, the EU can not only lead in environmental sustainability but also inspire a societal shift towards a future where climate policies are embraced by the people they aim to protect. As we stand at the crossroads of environmental urgency and social responsibility, the equal per capita climate dividend beckons as an instrument of progress towards a sustainable and just future.

Image copyright : EMMANUEL DUNAND / AFP

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