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.
(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.
- 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.
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