Climate Change Mitigation and Poverty Reduction (CliMiP) – Trade-Offs or Win-Win Situations?

The project adopts a multidisciplinary social science approach with a comparative and global perspective. While they will remain firmly theoretically and methodologically grounded in their respective disciplines, the three study areas – (1) domestic climate governance, (2) poverty and distributional impacts of mitigation policies, (3) global perspective and the mitigation-development discourse – will interact continuously. The investigation of domestic climate governance will rely mainly on qualitative methods. These will include interviews with policy-makers, experts and practitioners to investigate their motivations and the driving and constraining forces behind their actions in climate change mitigation policy processes. We then plan to assess the poverty and distributional impacts of mitigation policies (possibly including most NAMAs) in the three case study countries using incidence-focused general equilibrium models, simulation models based on micro-data, and a combination of these two modelling approaches. As mitigation policies in the case study countries are rare and recent, the limited availability of data means that the analyses will typically be ex-ante modelling exercises. In a final step, shaped by the lens of international relations, a combination of quantitative and qualitative content analysis will allow us to identify the "Frames" or "templates" according to which the problem of developing country mitigation and related themes are presented. This analysis will also demonstrate what types of solutions different actors or actor groups offer for these issues.

Simulating the welfare effects of fossil energy subsidy reform in Indonesia makes clear that the distributional impact depends on the subsidised energy carrier and the corresponding price schedule. Although all households suffer negative welfare effects in all policy scenarios without compensation schemes, the effects are progressive in the case of gasoline and electricity when keeping the current block-tariff schedules in place. The latter means, that the current cross-subsidisation with high demand users paying higher prices could be kept in place, combined with a general price increase this would lead to a slightly progressive distributional effect. However, this exclusive view on income issues neglects the problem of energy poverty. With rising prices, in particular low income households might switch to less modern energy sources and face transport problems through non-existing or poorly working public transport. Also, the average effects mask heterogeneous impacts even within income groups with a minority but still considerable population size in the low income groups facing similar welfare losses as richer households. Therefore, the preliminary conclusion of the micro studies is that energy price increases could potentially create win-win situations for mitigation efforts and poverty reduction in the case of properly designed compensation schemes, redistributing from the rich to the poor, and in particular addressing energy poverty.These microeconomic analyses are quite important on their own, as they are able to describe heterogeneous household behaviour in considerable detail. However, they miss out on important indirect effects induced by policy reforms such as price effects in production, the labour market and international trade. To reflect these effects, we use Input-Output (IO) and Computable General Equilibrium (CGE) models. Simulating a carbon tax for Thailand with an IO model, we find substantial indirect price effects resulting in a regressive scenario with significant impacts on poor households. We find similar results for Mexico with an IO model and for South Africa using a CGE model.