Implementing steep taxes on rich greenhouse gas emitters and then fairly distributing the income to help the poor could help reduce poverty in developing countries, contrasting conventional wisdom that we either have to tackle poverty or the climate.

Climate change doesn’t affect everyone in the same way. Around the world, the poorest people are often disproportionately affected, as they have very few ways to shield themselves from the effects. Without urgent action, climate change could push an additional 100 million people into poverty, according to the World Bank.

Generally, policymakers consider a choice between climate change mitigation and poverty reduction. It seems to make sense: fossil fuels and agricultural products such as fertilizers tend to be subsidized by governments and cutting down on those subsidies, the idea goes, would have a negative impact on consumers, especially those in poverty.

“Climate policies safeguard people from climate change impacts like extreme weather risks or crop failures. Yet they can also imply increased energy and food prices,” Bjoern Soergel, lead-author of the study, said in a statement. “This could result in an additional burden especially for the global poor, who are already more vulnerable to climate impacts.”

But what if there were ways to have both?

Having your cake and eating it too

Soergel and a team of researchers at the Potsdam Institute for Climate Impact Research (PIK) used computer models to predict how levels of global poverty might change if the current socio-economic trends continue. They found the world is on track to have about 350 million living in extreme poverty by 2030. Extreme poverty is defined as living with under $1.90 a day.

If the researchers are right, the world would then be very far from meeting the United Nations Sustainable Development Goal (SDG) of eradicating extreme poverty by the end of the decade. And the scenario could actually be much worse, as the number doesn’t account for the ongoing coronavirus pandemic or the effects of climate change.

If ambitious climate policies consistent with the 1.5°C target from the Paris Agreement were introduced, this would increase poverty by another 50 million people, the study showed. So far, conventional wisdom stands true. But this negative efect could be compensated by a redistribution of national carbon price revenue, through which those in need would get money from rich polluters.

In other words, tax the big emitters and share some of the money with the world’s poorest, and you’d end up with the best of both worlds. Soergel says governments should combine emission prices with progressive redistribution of the revenue they generated – a sort of “climate dividend”. The revenues could then be returned equally to all citizens, which would turn poorer households with typically lower emissions into net beneficiaries of the scheme.

It can be done

The researchers also suggested creating a scheme of international climate finance transfers from high-income to low-income countries in order to offset the additional burden poorer nations face in seeking to limit climate change. “Together, this could in fact turn the trade-off between climate action and poverty eradication into a synergy,” Soergel said.

A small fraction of about 5% of the emission pricing revenues from industrialized countries would be sufficient to more than compensate for the policy side effects of climate change mitigation in Sub-Saharan Africa. This financial transfer could lead to a net reduction of global poverty by around 45 million people in 2030, the researchers estimate.

“Combining the national redistribution of emission pricing revenues with international financial transfers could thus provide an important entry point towards a fair and just climate policy in developing countries,” Elmar Kriegler, co-author of the study, said in a statement. “And it does not stop there: We need to look beyond 2030 and continue to work towards the goal of eradicating extreme poverty.”

Schemes like this are what can help us alleviate both extreme poverty and the ongoing climate crisis. Without ambitious and quick action, we may end up having more of both instead of less.

The study was published in the journal Nature.