How climate compensation can reduce rising temperatures and inequality
Climate change is a pressing issue that requires global action. One Nobel Laureate believes climate compensation may help us get closer to a fairer and greener world.
Climate change poses an existential threat to our planet and its consequences are far-reaching, affecting not only the environment and citizens, but also by exacerbating global inequalities. Some economists and policymakers are focusing on the concept of climate compensation for developing countries as an attempt to mitigate this. Abhijit Banerjee, a development economist and Nobel Laureate, is one such expert that thinks climate compensation is a vital piece in the global sustainability puzzle.
Banerjee, who has focused much of his career on alleviating poverty, highlights the stark reality wherein the world’s poorest populations reside in the hottest parts of our planet and where temperatures continue to rise. He says the impact of climate change is disproportionately borne by some of our most vulnerable communities who do not have the resources to properly adapt their lifestyles or living conditions.
“The world's poorest live mostly in the hottest countries and they're getting hotter,” says Banerjee. “No human being is designed to live in those temperatures. Affluent people can put on the air conditioning and hide but that makes the problem, in a sense, worse. It's just solving it for them.”
Banerjee believes that climate compensation, which would provide financial assistance to developing countries to help them mitigate and adapt to the effects of climate change, is essential for achieving global sustainability.
Can cap and trade programs help reduce the impact of climate change?
Can cap and trade programs help reduce the impact of climate change?
Banerjee takes a pragmatic focus to his work, rather than theoretical one. Through randomized controlled trials and other tools, he has also taken a very topical approach, evaluating things like tradable pollution permits.
Pollution trading permits, or emissions trading, are a market-based approach to controlling pollution and greenhouse gas emissions. Governments set a cap on what they deem to be an allowable emission limit, issue permits, and allow companies to trade these permits when there is either a surplus or extra demand. Banerjee sees real benefits from cap and trade programs such as these.
“They reduce costs and reduce pollution at the same time,” he says. They can also drive innovation and ensure compliance while supporting economic growth. Despite all this, Banerjee says a more difficult conversation is needed.
“A lot of very poor people will lose if we let climate change happen and if we don’t let it happen by taking certain types of action,” says the Nobel economist. “If we raise energy prices, it’s not going to be the rich who are going to really be hurt, it’s the poor who will be hurt. How do you compensate them? There should be a clear conversation between the climate change policy design and how to compensate people. We have to think hard about how we will deal with the losers in this.”
How can we manage the impacts climate change has on poverty?
How can we manage the impacts climate change has on poverty?
Banerjee proposes a three-fold approach to climate compensation. First, he advocates for the creation of a global fund for compensation with a significant portion of the funding coming from wealthy nations. This fund would serve as a crucial resource for mitigating the impacts of climate change on developing countries.
The second aspect of Banerjee's proposal involves identifying what he refers to as “the victims of climate change” within each affected country—a task he acknowledges as politically challenging and for which a knowledge base is needed for making these types of determinations.
“When farmers can't farm, the farmers get poorer,” he says. But the people who are there, farm laborers, they're really the ones who often suffer because they have no fallback. They don't have any assets. So one has to think about that as an economist.”
Banerjee's vision for climate compensation extends beyond mere identification of victims. He emphasizes the importance of designing effective transfer mechanisms, including considerations of the transfer frequency. While cash transfers have been widely discussed, he cautioned against underestimating the magnitude of support required, suggesting that monthly or weekly transfers may prove inadequate.
“There are interesting and important nuances that we haven’t yet settled on there,” he admits. “We have made the most progress in terms of comparing cash transfer versus other forms. Where I think we need to get better, and quickly, is in identifying the victims of climate change and where we need a political will of a kind that doesn’t exist right now is the question of who’s going to pay for it.”
Equity is a growing piece of the ongoing conversations about climate change and Banerjee’s perspective adds depth and refinement for how to better address this. Policymakers and the international community at large all have a role to play, but who will emerge as a leader in the space remains yet to be seen.
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