Climate policy in an unequal world: Assessing the cost of risk on vulnerable households

Abstract

Policy makers concerned with setting optimal values for carbon instruments to address climate change externalities often employ integrated assessment models (IAMs). While these models differ on their assumptions of climate damage impacts, discounting and technology, they conform on their assumption of complete markets and a representative household. In the face of global inequality and significant vulnerability of asset poor households, we relax the complete markets assumption and introduce a realistic degree of global household inequality. A simple experiment of introducing a range of global carbon taxes shows a household's position on the global wealth distribution predicts the identity of their most-preferred carbon price. Specifically, poor agents prefer strong public action against climate change to mitigate the risk for which they are implicitly more vulnerable. This preference exists even without progressive redistribution of the revenue. We find the carbon tax partially fills the role of insurance, reducing the volatility of future welfare. It is this role that drives the wedge between rich and poor households' policy preferences, where rich households' preferences closely mimic the representative agent. Estimates of the optimal carbon tax and the welfare gains of mitigation strategies may be underestimated if this channel is not taken into account.

Systematic Literature Review of Housing Policies in Carbon Emission Reduction: Reflection for Indonesia

“…The carbon emission tax policy on fuel oil, although it reduces the use of fuel oil, also reduces the income of the rural area community and the poor due to the lack of public transportation (Vidyattama et al, 2021). Moreover, the tax value must be lowered compared to the initial policy framework (Malafry & Brinca, 2022). Alternative policies are to promote the use of fuelefficient equipment by the government, encourage people to consume foods with low processed carbon emissions (Jiang et al, 2020), and reduce dependence on private vehicles (Shigetomi et al, 2021).…”

A Macro Study of the Unequal Effects of Climate Change

“…3 Malafry and Brinca (2022) study the importance of inequality for optimal climate policy in a stylized twoperiod model in which households draw idiosyncratic labor productivity shocks. 4 An additional literature examines the distributional consequences of carbon prices instead of climate damage (see e.g., Parry, 2004;Fullerton and Heutal, 2007;Metcalf, 2007;Chiroleu-Assouline and Fodha, 2014;Parry and Williams, 2010;Williams et al, 2015;Fried et al, 2018Fried et al, , 2022.…”

Effect of Ta’awun (Mutual Cooperation) and Sejahtera Leadership on Sustaining Community Engagement

“…It is believed that the lack of ta'awun and sejahtera leadership led the industrialised and developed world to vulnerablity. The world is very vulnerable to pollution, climate change, civil wars, political unrests, discrimination, the uneven playing field of competition, and so on (Sam, 2016;Worley & Jules, 2020;Malafry & Brinca, 2022). According to Sam (2016), it is the duty of everyone to end the vulnerability.…”

“…Worley & Jules (2020) argued that organizations also can end the vulnerability by working together with the stakeholders. Indeed, Malafry and Brinca (2022) contended that every household could do a part to end the difficult situations.…”