Bruegel: EU climate policy must protect the most vulnerable

According to the Brussels-based think tank Bruegel, future EU climate policy should take into account the impact of expanding EU carbon pricing schemes on vulnerable groups, Montel News reports. Widening inequalities are one of four risks assessed in its report, which also sets out a series of recommendations.

The Brussels-based think tank Bruegel published a document last week titled “Europe’s 2040 climate target: Four critical risks and how to manage them”. The report assesses risks that threaten the EU’s climate goals and proposes recommendations to address each of them.

The European Commission has recommended that the European Union cut greenhouse gas emissions by 90 percent by 2040 compared with 1990. Achieving this target will require a massive expansion of renewable electricity generation, a drastic reduction in fossil fuel consumption, energy efficiency measures and deep electrification of end-use sectors.

Most of the technologies needed to meet emissions reduction targets are commercially proven and, in many cases, cost-competitive with or cheaper than fossil fuel alternatives, the report says. The deployment of clean technologies is accelerating, while the costs of key clean technologies continue to fall rapidly, it notes.

However, there are also risks, which the think tank identifies as geo-economic instability, the cost of clean technologies, widening inequalities and policy credibility.

Protecting vulnerable groups

The report highlights that lower-income households are disproportionately affected by higher energy costs and carbon prices, as is also evident in the planned revision of the European Union’s emissions trading system (EU ETS 2), which will include emissions from buildings and transport from 2027. Climate policies, particularly carbon pricing, can therefore increase inequality unless they include redistribution mechanisms.

To avoid regressive impacts, Bruegel says it is essential to redistribute carbon revenues to vulnerable groups through “climate dividends”. Well-designed measures can mitigate negative impacts, improve public support and advance long-term decarbonisation goals.

This risk also applies to the Czech Republic and the wider Eastern European region. The report stresses that Eastern Europe is particularly dependent on fossil fuels for household heating, meaning that vulnerable consumers in the region will be more affected than others by EU ETS 2 prices.

Support for the most vulnerable groups is to be provided by the Social Climate Fund (SCF), which was created alongside EU ETS 2. However, under EU rules, only 37.5 percent of carbon revenues can be used through the fund to compensate vulnerable citizens.

“With such a limit, a flat-rate payment would probably lead to regressive outcomes for all income groups, but targeted measures can protect the most vulnerable,” Bruegel said.

The report therefore proposes targeted measures and the introduction of plans to manage the negative consequences of decarbonisation and maximise the social, economic and environmental benefits of the energy transition.

Geopolitics, investment and stable policy

The report also assesses other risks, including a deteriorating geo-economic situation, technology costs, and the credibility and stability of policymaking.

Growing trade disputes and a higher risk of conflict in the global economy threaten the large-scale investment needed for the green transition, while the cost of clean technologies remains a key factor in the economic sustainability of decarbonisation.

Tensions in supply chains may result from ongoing trade disputes between the world’s major players, as illustrated, for example, by the increased tariffs on Chinese electric vehicles imposed by both the US and the EU.

The report therefore recommends that European green diplomacy emphasise the benefits of global trade decarbonisation, thereby ensuring access to affordable clean technologies and critical raw materials for both developed and emerging economies.