Tackling climate change and reducing poverty: is “building back better” possible?

by Daniele Malerba

The Covid-19 pandemic and the consequent recession are having negative effects on economies and, most importantly, on poverty. In building recovery plans, many use the slogan of “building back better”. This means designing recovery strategies that take account of the need to mitigate climate change and protect the environment coupled with a focus on well-being and inclusiveness.

This necessity to jointly achieve socio(-economic) and environmental goals was already advanced by Green (New) Deal proposals, such as the European or the American ones, announced shortly before the Covid-19 crisis. Despite becoming popular, these green plans remain contested and are hot topics in current presidential and political debates, as seen in the recent election campaign in the USA. Many, in fact, argue that climate mitigation strategies will negatively affect economic development and well-being. This argument related to social justice is one of the main barriers for the rollout of adequate climate mitigation strategies.

Given the urgency of both the Covid-19 recovery and climate change mitigation challenges, it is paramount to avoid misconceptions, and understand (i) what do environmental policies mean for poverty and (ii) how are policymakers and proposed plans taking this issue into account. Luckily enough, we can rely on a growing research body that examines this issues. So what does the recent evidence say?

In relation to the first point, there is fear that climate policies (and carbon pricing in particular) may increase inequality, as lower income households spend more proportionally on energy intensive goods. While this regressive effect is true for advanced economies, the same effect has not been found to be the case for middle and low-income countries. But despite the potential inequality for inequality to be slightly reduced, poverty would nonetheless increase due to higher prices. The good news is that lower income households can be compensated through cash transfers using a proportion of tax revenues.

A further critical point is the effect of climate policies on jobs. Especially coal regions or areas that depend on fossil fuel production will need to transition to new economic development modes. In addition, research has shown that climate policies favor employment of high skill workers. But there is also the consensus that through effective social policies, lower income workers can reskill and upskill and take advantage of new job opportunities. Therefore, to answer the first point above, climate policies can actually decrease poverty and inequality if they are complemented by adequate social (protection) policies.

As for the second point, how do current plans address this issue? The European Green Deal includes a Just Transition Fund. The proposed American Green New Deal sees a jobs guarantee policy as a main instrument, as part of a just transition framework. One critical point is that these plans seem to depart from ideologies and plans from a decade ago, based on green growth agenda. In those plans, climate change was conceived mainly as a market failure to be fixed through pricing mechanisms, and the main concern was to compensate lower income consumers for higher prices. However, today addressing climate change is seen as a systemic endeavour, where carbon taxes are just one part of the solution. Moreover, the climate crisis is seen as strictly linked with social crisis, needing government intervention and redistribution. This is why job guarantee programmes are proposed as part of an overall expansion of welfare states and more progressive fiscal policies.

Some of these proposals can also be linked to the de-growth movement, which – contrary to the plans mentioned above – has a negative view on economic growth. What is also interesting about de-growth especially in the context of poverty is that it underlines the need for democratic participation in society. For example, working time reductions are proposed to free time and lower overall unemployment, with a UBI to assure nobody falls below the poverty line.

In conclusion, poverty reduction and climate change mitigation are more complementary than one would think. While it is paramount to assess the distributional implications of climate policies, it is also important to understand them without a predefined (political) view. From a policy perspective, it is important to accompany climate change mitigation with the right social policies, as underlined in the “building back better” plans. It is also crucial to ensure that the proposed expansion of welfare states goes beyond a mere compensatory role of social policies towards a more transformative one, including inclusiveness, political participation, marginalization and stigma.

Only by addressing the underlying social crisis and following principles of justice, the climate crisis can be adequately addressed. And by working united for the common good, we can rediscover the power of human cooperation and social cohesion, as well as a renewed global sense of purpose, eroded in recent times as reflected in the rise of nationalistic movements. But we need to act quick.

Daniele Malerba is Researcher at the German Development Institute in Bonn, Germany. His work focuses on the intersection between poverty, climate change mitigation and policy mixes to achieve social and environmental goals jointly.