Climate Action

Why income inequality is bad for the climate

A homeless man sleeps on the street in Stockholm in this February 18, 2012 file photo. In a 15-year span, Sweden has seen the steepest increase in inequality of all countries in the developed world, with disparities rising at a pace four times that of the United States, albeit from a low level, according to OECD data.  To match Feature SWEDEN-INEQUALITY/ REUTERS/Leif R Jansson/Scanpix Sweden (SWEDEN - Tags: BUSINESS SOCIETY POVERTY) THIS IMAGE HAS BEEN SUPPLIED BY A THIRD PARTY. IT IS DISTRIBUTED, EXACTLY AS RECEIVED BY REUTERS, AS A SERVICE TO CLIENTS. NO COMMERCIAL OR BOOK SALES. SWEDEN OUT. NO COMMERCIAL OR EDITORIAL SALES IN SWEDEN. NO THIRD PARTY SALES. NOT FOR USE BY REUTERS THIRD PARTY DISTRIBUTORS - GM1E83L1RVQ01

While overall prosperity has increased in recent decades, growth has not been just Image: REUTERS/Leif R Jansson/Scanpix

Karl-Petter Thorwaldsson
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In recent decades, income inequality has increased in almost all OECD countries. The average income of the richest 10% of the population today is about nine times as high as the average income of the poorest 10%. Twenty-five years ago, it was seven times as high. While overall prosperity has increased in recent decades, growth has not been just, and not everyone has benefited.

Data from OECD, “Divided we stand”/OECD Income Distribution and Poverty. Note: refers to adjusted disposable household income.

Greater inequality fuels distrust, discontent and right-wing populism. Individuals whose income has grown less than others' more often support radical right-wing parties, a new European study shows. The inclination to support these parties is greater among individuals who perceive their own income to be low if they live in a country where income inequality has increased more.

A Swedish study found that lay-off notifications among native-born workers in Sweden after the 2009 financial crisis led to increased support for the Swedish far-right nationalist party, the Sweden Democrats. This effect was greater in areas where a large share of low-skilled immigrants had moved. Another new Swedish study found that the Sweden Democrats have been particularly successful in areas where a larger proportion of the population are economic “losers” compared to the rest of the population.

In some countries, the reaction against increasing inequality is taking the form of demand for a stronger national state that detaches itself from international market relations. We see this most clearly in the US and the UK. Both countries are closing themselves off from the rest of the world: the US, by terminating and renegotiating trade agreements, and the UK, by leaving the EU.

It is not just liberal democracy that risks crisis when inequality increases. We are now facing one of humanity’s greatest challenges - the climate threat. Curbing the global rise in temperature demands difficult changes, costly measures and international cooperation. But for action to be possible, the transition to a low-carbon economy requires that costs are shared, and that economic prosperity is more equally divided.

If those who have already fallen behind also have to bear the cost of transition, there is an imminent risk that we will fail in this historically important task. When, as is the case in France, over 20% of the recent decades' GDP growth has gone to the richest 1% (more than the share of the entire lower half of the income distribution), a proposed increase in the price of fuel becomes a provocation.

Data from Garbinti, Goupille-Lebret and Piketty (2017). Note: distribution of pre-tax national income among equal-split adults in France. The unit is the adult individual (20 and over; the income of a married couple is split in two).

To achieve the Paris Agreement’s climate goals, emissions must decrease by 45% by 2030 compared to 2010, according to the UN Intergovernmental Panel on Climate Change (IPCC). If the transition to a low-carbon society is to gain general acceptance, citizens must feel that the measures are just, and that they do not make life unnecessarily or unfairly difficult for ordinary people and communities.

A fair transition means that the largest emitters should also bear a considerably greater part of the costs. It has long been understood that rich countries must take greater responsibility for the transition, and this is completely correct. But as the global trade union movement, together with many other parts of civil society, noted ahead of the UN Climate Change Conference in Katowice in December 2018, “each country's fair share of that global effort must be divided fairly among its communities, households, and individuals”.

In a study by Chancel and Piketty from 2015, the authors estimated that the average emission level for a French individual in the third income decile (a group consisting of the lower middle class and working class, many of whom have probably been protesting in the French streets in the past months) is estimated to be about 6.5 tonnes CO2e annually. This is an emission level close to the global average. In comparison, the top 1% of the US population is estimated to emit an average of 318.3 tonnes CO2e per person annually.

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A just transition also means a transition that does not unfairly affect those workers who are employed in sectors where rapid changes are needed. The fossil fuel sector still employs many people that need to feel assured that they will be able to get new jobs with good incomes. Many other sectors are also still dependent on coal and oil for their operations. These include the steel and chemicals industries, as well as large parts of the transport sector. These sectors and the people employed in them need support to develop alternatives that make these industries climate neutral.

So how do we achieve a fair transition?

1. The trend of the past few decades - increasing income and wealth inequality - must be reversed

When everyone knows that they will share in increasing prosperity, we are more likely to succeed in transitioning to a more sustainable society. Well-paid jobs and good working conditions are fundamental for an equal society. Capital needs to be more equally divided, and redistribution needs to be strengthened.

2. An investment-led climate policy is necessary

The necessary transition will not take place without both private and public investments in fossil-free technology, as well as in fossil-free goods and services. We need climate neutral energy systems, fossil-free transport systems and expanded public transport, but also circular supply chains and fossil-free production processes for the steel, cement and chemicals industries, among others. To stimulate demand for climate smart solutions, public institutions should impose requirements in their procurements for fossil-free and climate smart solutions.

3. Without education initiatives, there is a risk that climate and sustainability transition will stagnate

Both states and social partners must take responsibility for and ensure that conditions exist for on-the-job training and other educational opportunities. Continuing education and skills development are necessary to enable the workforce to develop the skills needed for the transition. Opportunities for retraining, student financial aid and good unemployment insurances are also necessary to create economic security and acceptance of the transition among groups whose jobs are directly impacted.

The trade union movement has long pointed out the need for a fair transition to obtain public support for implementing the changes that are necessary for the climate. If people in the sectors that must adapt are not supported, there is an imminent risk that they will not accept the changes needed to prevent climate change.

If low-income earners and people in rural areas must bear a disproportionately large share of the cost of reducing our emissions, the result will be vocal protests. If the wealth created in society is not shared by everyone in the form of increased prosperity, the consequences will be right-wing populism, discontent, distrust and climate change denial.

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Related topics:
Climate ActionEnergy TransitionJobs and the Future of WorkEquity, Diversity and InclusionNature and Biodiversity
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