A climate policy for fairness, jobs and growth

A climate policy for fairness, jobs and growth Sweden, like several other EU countries, is currently experiencing a backlash against climate policy.One reason is how climate policy is perceived to affect household finances.In Sweden, fuel taxes and the biofuel blending mandate have been the subject of intense debate, and in many places the question has arisen of how emissions can be reduced while compensating households so that vulnerable groups are not disproportionately affected.Our research shows that there are more effective ways to compensate for high fuel prices than cutting fuel taxes.Such solutions can simultaneously reduce emissions, strengthen the economy, and counteract inequality.Climate policy instruments can therefore be designed to promote both environmental and socio-economic goals.During the 2022 election campaign, petrol prices became a key political issue.This led the Swedish government to gradually reduce taxes on petrol and diesel between 2023 and 2024.At the start of our study, the tax cut amounted to eight billion Swedish kronor per year.Today, the figure exceeds fifteen billion.This is a substantial sum, and since there are several alternative ways for the state to spend it, all with different effects on emissions, employment, GDP and economic inequality, there is good reason to examine these alternatives. Payments to households deliver better outcomes than lower fuel taxesThere are several alternative policy solutions for compensating households for high fuel prices that can produce more desirable outcomes than reduced fuel taxes.Our research shows, for example, that allocating eight billion Swedish kronor to welfare services, with half directed to education and half to healthcare, would result in significantly better outcomes for both GDP and employment.Another option is subsidies for electric vehicles in the budget and midrange segments, which would reduce emissions considerably more than any other policy instrument examined in our study.