Enhancing fairness in climate action through policy packages

Abstract Achieving a fair transition to climate neutrality requires a careful balancing of policy options. Here we quantitatively evaluate the equity implications of different European Union climate policy packages, considering pricing, regulation via standards, subsidies and transfers. Leveraging an integrated modelling framework, we show that standards limit impact variability within income groups, whereas carbon pricing with transfer-based revenue recycling offsets regressive impacts between income groups. Restricting climate policy implementation to either option, therefore, gives rise to a trade-off between horizontal and vertical equity. We then demonstrate numerically how a multi-instrument budget-neutral policy package can resolve this trade-off. Adopting a broader equity perspective that encompasses both horizontal and vertical equity shifts the preferred policy mix towards a combination of standards, pricing, subsidies and transfers. These results provide an explicit, quantified, equity-based rationale for the adoption and acceptability of comprehensive climate policy packages, offering a more nuanced view on policy design.