FAIRCLIP

Greatly rising energy prices have started a debate about households’ high energy costs and their distributional effects. While the price spike is mainly caused by the Ukraine war, ever more stringent climate policies imply increasing costs with likely significant societal challenges unless mitigated by smart redistribution. This is especially true for the EU’s highly ambitious goal of climate neutrality that requires nothing short of the total transformation of private mobility. Many households need a vehicle, which often is their largest investment in carbon intensive durable goods. It also indicates social status. But how large are the transformation’s distributional effects on households? The literature uses energy costs relative to household income to measure welfare. FAIRCLIP uses two additional sources of inequality for a more accurate and complete equity assessment: effects on asset values and access to finance. First, climate policies might devalue assets that rely on fossil fuels. In extreme cases, they become stranded assets. We quantify how policy-induced energy costs affect vehicle values. Second, banks price in such devaluation risks when financing vehicles. Therefore, we also analyze how climate policies affect interest rates and credit rationing that decrease access to cheap car loans. The less affluent who are credit constrained, who own the least efficient vehicles, and can least afford efficient ones, may have the highest risk of stranded assets and the loss of access to affordable financing. Thus, they may most resist any policy changes. FAIRCLIP uses new data and quantitative tools from environmental economics, finance, and statistics to provide insight into who wins and who loses from the coming structural transformation in Germany. This will help to design distributional policies that mitigate adverse effects for the vulnerable and increase the social acceptance of the inevitable change.