Social Gap and Climate Change within the G7
Protecting the Vulnerable is Vital to Hit Net Zero
Industrialized countries’ growing social chasm is jeopardizing the fight against climate change. How does Germany want the G7 to respond? A commentary on Social Justice Day.
Germany took over the G7 presidency at the turn of the year. Chancellor Olaf Scholz announced that he would use the opportunity to make the leading democratic industrial nations - the USA, Canada, Great Britain, Japan, France, Italy and Germany - pioneers "for climate-neutral economic activity and a just world". This plan sounds promising. Not least because the energy transition can only succeed if it is socially accepted.
The multilateral policy of deregulated markets that prevailed since the 1980s was supposed to ensure growth, development and prosperity. It has allowed incomes and wealth to rise - but not for everyone. Even in the G7 countries, large sections of the middle class were hard hit by a string of crises - financial, euro or COVID 19, which left them among the losers of these policies. A bitter lesson that the G7 had to learn from the last two decades is: the widening of the social gap endangers democracy and multilateralism.
Growing fears among the middle class
During the latest crisis, the COVID-19 pandemic, the lower middle class has once again been hardest hit. The recently published Germany country report of the Bertelsmann Foundation study "Sustainable Governance in the Context of the COVID-19 Crisis" warns: "There is even the risk that the large economic and social costs of the pandemic might weaken the societal consensus that decarbonization is worth the high efforts and costs."
As documented in an OECD study, the politically stabilizing middle classes are shrinking and coming under greater pressure due to stagnating incomes, rising costs of living and greater job insecurity. Almost everywhere across industrialized countries, the risk of dropping out of the middle class or not even entering it as a young person has increased. The USA, Canada and Germany are particularly affected by this development. Even for Japan, which according to the OECD study has not seen a shrinkage of its middle class so far, the country experts of the Sustainable Governance Indicators (SGI) of the Bertelsmann Foundation warn: "The crisis threatens to impact negatively on the distribution of wealth and income and might hasten the rise of a precariat."
The German government sets its G7 priorities
At its first cabinet meeting, the new German government adopted its programme for the G7 Presidency in 2022, entitled "Progress towards an equitable world". It says: "Social inequality undermines confidence in the ability of democratic systems to function, while increasing insecurity sets the stage for disinformation and is exploited to dismantle civil society and the rule of law." For this reason, among others, they aim to improve the employability of citizens, fostering decent work and the development and expansion of social protection systems. They stated their conviction "that an environmental and socially just transformation and economic prosperity can go hand in hand."
Does this inspire confidence in people who are already deeply insecure because they can no longer find affordable housing in the inner cities, even though they belong to the middle class according to official statistics? The millions of people who are affected by drastically rising energy prices, who are cutting back on heating, no longer flying on holiday, getting rid of their cars - and watching billionaires being shot into space as space tourists?
Counteracting rising energy prices
Confidence is probably created less by G7 programs and summit documents than by concrete policies within individual countries. Energy costs are one example of how climate neutrality can be made socially acceptable. Quite independently of the current turmoil on the energy markets, the prices for fossil energies must rise if the goals of the Paris Climate Agreement are to be achieved. After all, this is the only way to ensure that resources are used sparingly for the benefit of all, until renewable energies can be rolled out to largely replace them. The instruments states have for this are CO2 pricing and levies. But how do you ensure that poorer people can still afford heating?
Many call for tax cuts in this context. In fact, taxes, levies and surcharges accounted for around 33 percent of the total price of gas used in households in Germany in the first half of 2021. If energy taxation was slashed, savings would be made by all households, poor as well as the wealthy, who have a significantly higher energy consumption anyway. A measure that is both easier to implement and more climate-friendly is targeted support for households that are particularly affected. In addition to the poor and low-income earners, however, help should be provided to those medium-income taxpayers who are facing the risk of slipping out of the middle class into poverty as a result of rising energy prices.
Shrinking climate-damaging subsidies in a socially acceptable way
This support could be financed in Germany from the additional revenue that the state could generate by reducing climate-damaging subsidies, for example the energy tax exemption for jet fuel or the commuter allowance. For 2018, a study by the Federal Environment Agency puts this amount at 65.4 billion euros. High-income population groups benefit disproportionately from such regulations. As early as May 2016, the G7 agreed to end inefficient subsidies for oil, gas and coal by 2025. At the last meeting in Cornwall, this resolution was reaffirmed, but so far little progress has been made. On this point, the German G7 presidency could become a role model by rolling out decisive reforms. Negative social consequences must also pro-actively be taken into account and the reform packages must be expanded to include appropriate measures.
Public opinion will only be swung in favor of transitioning to climate neutrality if social policies are put in place to limit negative impacts on poor and lower-middle-income households. The fear of social decline must be countered by implementing a fairer overall policy to regain flagging trust. After all, societal cohesion is a crucial step towards securing international efforts in the fight against climate change.