Last year, when the Russian-Ukraine war broke out, Russia leveraged its fossil fuel supply to Western Europe as a means to influence NATO’s decisions against aiding Ukraine. As a result, Germany found itself in a dichotomy; a large portion of its economy was dependent on Russia’s oil and gas supply. An Inclusive Green Economy (IGE) could have shielded Germany from this political pressure. However, because it’s green policies were not inclusive enough, Germany’s green transition was slower than its Western European peers.
The Inclusive Green Economy (IGE) philosophy calls for all economic activities to be harm-free to the environment while supporting and benefiting all members of society, not just a few. Today, there is international recognition of the relationship between social equity, economic development, and a healthy environment (Steiner. March 2016 UNEP Our Planet[1]). However, many countries address these three components in silos. The emergence of the Green Economy in recent years has facilitated the integration of environmental policies into economic activities. However, many green policies fail to address their impact on businesses and households. As a result, they cause (or exacerbate) social inequity. Later I will show how this happened in Germany, but first, I would like to define social equity in the IGE context.
In IGE, social equity is measured by the number of employments a green economy provides, how much it shrinks the number of poor households (those needing subsistence help), and how it closes the pay gap between the poor and the rich. Green policies that ignore those measures can adversely affect all economic sectors..
When pursuing a Green Economy, countries aim (among other goals) to replace emission-intense fossil fuels, oil, gas, or coal, with clean, emission-free energy sources such as wind, solar, hydrogen, or nuclear. This energy transition impacts every sector of the economy and can be too costly for many to survive. In replacing fossil-fuel equipment to clean-fuel ones, some businesses can go bankrupt, employees could lose jobs, and individuals could face increased cost of living. These risks are real and instill social fear, creating what psychologists call “metathesisphobia” or fear of change among businesses and the population. For these reasons, governments must assume the initial infrastructure costs and adopt IGE policies to incentivize economic change equitably. It is the shortest road to a green transition.
On the other hand, inequitable policies slow down a green transition. They can cause social unrest, as seen in France when the French government introduced a climate tax in 2018, gilets jaunes protests followed (Carattini et al., 2019). Inequitable policies can also cause implicit resistance in the form of political influence. Industry lobbyists use their political power to prevent or bypass policies threatening their livelihood, as what happened in Germany.
Germany’s policies were not inclusive enough. A study revealed the cost of electricity had more than doubled in Germany since the introduction of the Renewable Energy Act. In 2011, which created a social layer of 6.9 million households (17% of the total) that were Energy poor[2] (Weber and Cabras, 2017). The resistance was most evident in another study highlighting the influence of “well-organized lobbies” in Germany. The lobbyists achieved a level of special treatment, consequently raising the cost and impeding the green agenda. “Well-organized lobbies were either exempt from policy instruments such as the energy tax or directly benefitted from them, as in the case of the renewable feed-in tariff or windfall profits from free allocation of emissions allowances.” (Michaelowa 2013 p.315). It is this slow transition to green economy that exposed Germany to the Russian political pressure in February 2022.
At Certis we believe that IGE policies are the fastest path to meaningful transitions that benefit lives, the environment, and the economy. For additional information, please contact our team at ifo@certisinc.com
[1] From an article in the United Nations Environmental Programme (UNEP) magazine, Our Planet.
[2] Energy poor is given to those spending more than 10% of their income to pay for electricity.
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