Political and Distributional Challenges of Addressing Climate Change

Distributional Conflicts in Climate Change Solutions

• Addressing climate change activates a series of distributional conflicts that complicate the construction of any political solution.

• These conflicts are akin to those observed in trade policy.

• Any political attempt to cut carbon emissions activates at least three distinct sets of distributional conflicts:
      * Conflicts within societies regarding the costs and benefits of reorienting energy consumption and generation.
      * Conflicts between countries regarding the distribution of global costs and burdens.
      * Intertemporal conflicts across generations.

Distributional Challenges Within Countries

• The shift from fossil fuels to renewable energy results in the decline of economic fortunes for certain powerful industries while increasing prospects for others.

• Wealth and power are redistributed between different producers within the energy sector.

• Energy Sector Emissions Statistics:
      * Electricity and heating account for $25\%$ of all carbon dioxide ($CO_2$) emissions in The United States.
      * Electricity and heating account for $40\%$ of all $CO_2$ emissions globally.
      * Over $60\%$ of energy in The United States is generated by burning fossil fuels, primarily coal and natural gas.

• The International Energy Agency (IEA) Report (May 2021):
      * The report outlines changes necessary to achieve net zero carbon emissions by the year $2050$.
      * The scientific community concludes this is necessary to limit the rise of global temperatures by $1.5\,^\circ\text{C}$ and avoid the worst consequences of climate change.
      * IEA Projections for Energy Production Changes by 2051 (over 30 years):
          * Coal production must drop by $90\%$.
          * Oil production must drop by $75\%$.
          * Natural gas production must drop by $55\%$.
          * Solar and wind power production must ramp up tremendously to compensate for these decreases.

• Economic Consequences and Industry Reactions:
      * Implementation requires massive new investments in solar for electricity and heat.
      * While the solar industry benefits, the cost of residential heating and electricity for consumer electronics might increase.
      * Labor impact: Coal miners and oil rig workers will lose their jobs.
      * Sectors negatively affected are expected to lobby and protest policy proposals.
      * The oil and coal industries in The United States may invest in lobbying to pressure elected officials for:
          * A relaxed regulatory environment on oil and gas exploration.
          * Encouragement of the federal government to open new leases for exploration in the Western United States and Alaska.

Distributional Challenges Between Countries

• The second major issue is the allocation of global costs for controlling carbon emissions across different nations.

• Developed vs. Developing World:
      * The developed world (e.g., The United States and Europe) has already begun adjustments through solar investment, fuel conservation, urbanization, and public transportation infrastructure.
      * These advanced economies may find the cost of economic adjustment more tolerable.
      * Developing countries and major energy consumers (Brazil, Russia, India, and China) argue they should be compensated by the developed world.

• The Historical Responsibility Argument:
      * Developing nations argue that The United States and other developed countries did not pay the total social costs of their industrialization in the $\text{19th}$ century.
      * American coal and oil consumption in the $\text{19th}$ century contributed significantly to the global rise in $CO_2$ levels and temperatures.
      * Proponents of this view argue The United States and Europe should assume more of the modern burden to cut $CO_2$ levels.
      * Developing nations question why they should reorient consumption today in a way that slows their own economic development.

• Impact on Oil-Producing States:
      * IEA projections indicate a severe loss of revenue for oil and natural gas producers if net zero emissions are pursued by $2050$.
      * By the year $2030$, revenues for oil-producing states are projected to drop by over half, from $\$800,000,000,000$ to under $\$400,000,000,000$.
      * Further reductions in supply would continue to reduce revenue in subsequent decades.
      * States such as Saudi Arabia and Russia, which rely on oil and gas exports as a primary revenue source, would face a massive economic reorientation without easy alternative revenue streams.

Intertemporal Distributional Challenges

• Intertemporal implications refer to the distribution of costs and benefits across different generations.

• Generational Disparity:
      * Under current trends, current generations may not face the most severe costs of climate change.
      * Costs will predominantly fall on children and grandchildren (younger and future generational cohorts).

• Political Incentives and "Kicking the Can down the Road":
      * Climate change is a long-term problem with strong incentives for politicians to delay action.
      * Future generations (the unborn) do not have a vote in current political systems.
      * Politicians often prioritize the interests of current constituents over future ones.
      * Cooperation is impeded because short-run costs are borne by groups (current industries and voters) that possess significant political influence, while the benefits of mitigation accrue to those without current political power.