Policy Note 39: Climate Task Force faces a tricky task

Climate change cannot be denied. Austria has therefore rightly committed to reducing_{CO2 emissions} at international level. However, current forecasts do not assume that Austria will meet its targets by 2030. However, European emissions certificate trading is already ensuring that the_{CO2 emissions targets} are met in the energy and industry sectors. "The task now is to find suitable climate policy instruments for pricing_{CO2 emissions} in the sectors that are not included in European emissions certificate trading," says Tobias Thomas, Director of the economic research institute EcoAustria. These are in particular the areas of transport, buildings and agriculture.

"The federal government's task force, which is due to start work in February, faces a tricky task, as it has to develop a climate policy instrument for the areas of transport, buildings and agriculture that will ensure that the climate targets are met, that Austria remains competitive as a business location and that undesirable social side effects are avoided as far as possible," says Thomas.

There are considerable pitfalls here: for example, requirements and bans generally take insufficient account of the different avoidance costs of private households and companies and therefore lead to unnecessarily high costs. The large number of requirements and regulations in practice is also associated with considerable uncertainties regarding the achievement of targets. In the case of the_{CO2 tax}, the level of the tax with which the specified emissions target is achieved can at best be estimated. There is therefore a risk that the government will set the tax too low or too high, thereby missing the target or unnecessarily burdening private households and companies. Frequent readjustment of the tax level would therefore be likely, as the example of the_{CO2 tax} in Switzerland shows. With emissions trading, on the other hand, the quantity of emissions can be controlled directly via the quantity of certificates issued. Such a system could also help to ensure that climate targets are achieved accurately at national level in the areas of transport, buildings and agriculture.

"If the revenue from_{carbon pricing} is refunded to employees and companies, this can have a positive impact on growth and employment and the double dividend of climate policy can be realized," explains Thomas. However, if it is designed unfavorably, growth and employment and the associated income and consumption opportunities for private households can also be significantly curbed. For example, international studies show that the growth effect of_{CO2 pricing} can be between plus 4 and minus 8 percent cumulatively over 40 years, depending on the amount and type of reimbursement. This illustrates the opportunities but also the risks of climate policy. The distribution effect is also dependent on this. In addition, passing on the CO2 price to consumer prices increases inflation, which can increase labor costs through higher wage settlements. This should also be taken into account in the reimbursement of revenue. If the goals of ecological, economic and social sustainability can be achieved together, Austria can be a role model for many countries, according to a policy note published today.