Project

ROCHADE- Mitigation Policies in a Globalized and Developing World: The Role of Structural Change and Distributional Effects

Start of Project 01/2019
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End of Project 06/2022

The project analyses the distributional effects of climate policies taking the role of structural change into account. ROCHADE, in particular,  investigates in how far ambitiuos mitigation policies slow down the transformation from agriculture based economies towards modern industry and service based economies. The interaction of structural change with economic growth and its impact on poverty reduction is analysed,  as well as the interrelationship between structural change and climate change. Distributional effects are analyzed at the macroeconomic and the household level, and policy measures will be identified that help reducing negative distributional effects. 

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Project results

(I) Historically, the use of coal correlates positively with economic growth and poverty reduction; coal power plants cause significant regional economic growth effects shortly after commissioning. (II) International trade and the accumulation of capital foster the inter­national convergence of sectoral structures. In the last decades, a trade-induced spe­ciali­za­tion in carbon intensive sectors has been observed, nevertheless. (III) Under the condition of current international trade policies, developing countries are mostly affected from welfare losses due to climate change. (IV) In Germany, poor households are mostly affected by con­sump­tion effects (i.e. higher expenditure) of climate policy, while rich households are more affected by income effects. (V) In developing countries, distributional effects of struc­tural change are potentially larger than those of climate policy. Climate policy tend to brake struc­tural change due to declining shares of economic activity in the manufacturing sector.

Illustration of project results

The red lines compare the distribution of in­come changes and the consumption in­ci­dence in a scenario with climate policy and a scenario without climate policy. The blue lines compare a scenario with and a scenario without structural change. Negative values in­dicate lower values in scenarios with climate policy and structural change, respectively. The results of the Indian case study can be summarized as follows: (I) Climate policy as well as structural change impact households consumption via changes in prices and in­come. (II) Both, climate policy and structural change, have regressive distributional effects, i.e. poor households are more adversely affected. However, the range of consumption losses between rich and poor households is much larger as a result of structural change than of climate policy. (III) The results are robust under three different socio-economic pathways (SSPs). (IV) The most relevant policy to support the poor is a policy portfolio that stimulates (rural) economic development and structural transformation, enabling high value added jobs in the manufacturing and service sectors. Such a policy portfolio includes employment pro­grams, education, digitalization and trade openness; it supports labor mobility because dis­tri­bu­tional effects of long-term structural adjustments will be more severe if mobility is con­strained.


Main Findings

  • Historically, the use of coal correlates positively with economic growth, in­dus­triali­­sa­tion and poverty re­duction; coal-fired power plants cause significant re­gional growth effects in the period after commissioning.
  • Inter­national trade and capital ac­cu­mu­la­tion promote the inter­national alignment of sectoral structures. In this millennium, however, trade-induced spe­cialisation in CO2-intensive sectors can also be ob­served.
  • If current trade policies are main­tained, developing countries are most affected by wel­fare losses due to climate change.
  • Consumption effects of climate policy in Germany hit poorer households the hardest, while income effects hit rich house­holds the har­dest. With per capita-based distribution of revenues from CO2 pricing, poorer house­holds benefit from climate policy.
  • Distributional effects of structural change are poten­tially stronger than those of climate policy.

Flagship-Paper

Fischer, C., Hübler, M., Schenker, O. (2021):
More Birds than Stones – A Framework for Second-best Energy and Climate Policy Adjustments. Journal of Public Economics 203: 104515.

Hübler, M., Pothen, F. (2021):
Can Smart Policies Solve the Sand Mining Problem? PLOS ONE 16 (4): e0248882.

Kalkuhl, M., Steckel, J. C., Montrone, L., Jakob, M., Peters, J., Edenhofer, O. (2019):
Successful coal phase-out requires new models of development. Nature Energy 4: 897-900.

Marcolino, M. (2022):
Accounting for Structural transformation in the U.S. Journal of Macroeconomics 71: 103394.

Montrone, L., Kalkuhl, M., Steckel, J. C. (2022):
The type of power capacity matters for economic development - Evidence from a global panel. Resource and Energy Economics 69: 101313.