{
  "title": "Managing the Political Economy of Climate Change Policies",
  "publication": "IMF Blog, August 5, 2021",
  "sourceUrl": "https://www.imf.org/en/blogs/articles/2021/08/05/managing-the-political-economy-of-climate-change-policies",
  "canonical": "https://www.imf.org/en/blogs/articles/2021/08/05/managing-the-political-economy-of-climate-change-policies",
  "overlayPath": "/en/blogs/articles/2021/08/05/managing-the-political-economy-of-climate-change-policies/index.md",
  "summary": "Authors: Davide Furceri, Jonathan D. Ostry",
  "sections": [
    {
      "heading": "Key empirical findings",
      "content": "- Climate change policies—especially market-based measures such as a carbon tax on fossil fuels—are likely to face opposition from:\n  - energy-using industries, and\n  - the public at large.\n- Political costs of mitigation policies depend critically on income inequality:\n  - Political costs are negligible when income inequality is held in check, either:\n    - through the design of the mitigation policies themselves, or\n    - because of adoption of complementary policies that protect the poor and allow them to bounce back from short-term dislocations inflicted by higher carbon prices.\n  - When inequality increases, the results suggest political costs will tend to be high.\n- Social protection and labor market policies matter:\n  - Political costs are muted when social safety nets are expanded to provide insurance against lay-off risks.\n  - Political costs are muted when active labor market policies are expanded to give displaced workers a fair shot.\n- Energy price environment matters:\n  - Advancing mitigation policies in times of low oil prices is beneficial because people will suffer less from higher carbon prices when energy is cheap.\n- Industrial structure matters:\n  - Economies with a large industrial base reliant on dirty energy (like coal) inputs will be more challenged in building support for mitigation and are likely to suffer more negative political impact.\n  - Diversifying the industrial base may help facilitate climate mitigation policies.\n- Policy instrument acceptability:\n  - Non-market-based instruments—such as emission limits on power plants and public subsidies and investments in research and development—tend to be more palatable to electorates, even if they are second-best from an economic efficiency standpoint, provided they come with a transparent analysis of the costs and benefits."
    },
    {
      "heading": "Policy recommendations and strategic implications",
      "content": "- Design mitigation policies with political economy dimensions in mind to minimize or eliminate political costs.\n- Protect vulnerable households who may lose out in the short term from the transition to a greener economy, for instance by:\n  - targeting social protection to the poor, and\n  - supporting workers whose jobs are threatened through insurance and active labor market policies.\n- Sequence and time policy implementation to take advantage of periods of low oil prices when possible.\n- Consider industrial diversification strategies to reduce reliance on dirty-energy-intensive sectors.\n- When politically constrained, deploy non-market-based instruments coupled with transparent cost–benefit analysis to increase public acceptance."
    },
    {
      "heading": "Overarching conclusion",
      "content": "- Climate change will remain the defining global challenge of our age; environmental legislation requires public support to be viable. This research identifies lessons to help build such support and use the current crisis as an opportunity to advance low-carbon and climate-resilient economic growth.\n\nSource: Managing the Political Economy of Climate Change Policies, Davide Furceri and Jonathan D. Ostry, August 5, 2021.\n\n---\n\n\n References\n\n- environmental and human catastrophe\n- IMF staff research\n- IMF\n- held in check\n- Providing social protection\n- low-carbon and climate-resilient economic growth\n\nSource: https://www.imf.org/en/blogs/articles/2021/08/05/managing-the-political-economy-of-climate-change-policies"
    }
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    "[Markdown version](/en/blogs/articles/2021/08/05/managing-the-political-economy-of-climate-change-policies/index.md)",
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    "Authors: Davide Furceri, Jonathan D Ostry",
    "Published: August 5, 2021",
    "Climate change policies—especially market-based measures such as a carbon tax on fossil fuels—are likely to face opposition from:",
    "Political costs of mitigation policies depend critically on income inequality:",
    "Social protection and labor market policies matter:",
    "Energy price environment matters:",
    "Industrial structure matters:",
    "Policy instrument acceptability:",
    "Design mitigation policies with political economy dimensions in mind to minimize or eliminate political costs.",
    "Protect vulnerable households who may lose out in the short term from the transition to a greener economy, for instance by:",
    "Sequence and time policy implementation to take advantage of periods of low oil prices when possible.",
    "Consider industrial diversification strategies to reduce reliance on dirty-energy-intensive sectors.",
    "When politically constrained, deploy non-market-based instruments coupled with transparent cost–benefit analysis to increase public acceptance.",
    "Climate change will remain the defining global challenge of our age; environmental legislation requires public support to be viable. This research identifies lessons to help build such support and use the current crisis as an opportunity to advance low-carbon and climate-resilient economic growth.",
    "[environmental and human catastrophe](https://blogs.imf.org/2020/09/15/charting-a-path-for-a-resilient-recovery-in-sub-saharan-africa/)",
    "[IMF staff research](https://www.imf.org/en/Publications/WP/Issues/2021/06/04/Are-Climate-Change-Policies-Politically-Costly-460565)",
    "[IMF](https://www.imf.org/en/Publications/FM/Issues/2019/09/12/fiscal-monitor-october-2019)",
    "[held in check](https://www.imf.org/external/pubs/ft/fandd/2018/06/economics-of-promoting-inclusive-growth/ostry.htm)",
    "[Providing social protection](https://blogs.imf.org/2020/04/20/a-global-crisis-like-no-other-needs-a-global-response-like-no-other/)",
    "[low-carbon and climate-resilient economic growth](https://blogs.imf.org/2020/07/15/the-next-phase-of-the-crisis-further-action-needed-for-a-resilient-recovery/)"
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