In the wake of the pandemic, affiliates of the Paris climate agreement updated their national contributions to international climate targets (NDCs) for the first time. Simultaneously, countries introduced large-scale social protection measures to mitigate the effects of COVID-19. The economic and political effects of the COVID-19 pandemic fundamentally shape the prospects for a just transition to a sustainable society.

Economic recovery packages, climate mitigation and adaptation measures, and relief and anti-poverty programmes weigh heavily on public budgets and create the necessity for fiscal reform. This pressure to act offers a historic opportunity to achieve a triple dividend: climate ambition, consolidation of public budgets, and social justice. Implementing carbon fiscal reform could allow countries to address these challenges by setting price signals for a low-carbon economy, generating public revenues, and addressing poverty and inequality by using part of the revenues for social protection.

Our project offers three novel insights: first, on the carbon fiscal reform ambition of NDCs as indicator for climate ambition; second, on carbon fiscal reform design to reduce poverty and inequality; and third, on the underlying differences in political and economic processes influencing reform implementation across industrialised, and low and middle income countries.

Our project integrates economics, political science and social science in a mixed-methods design, combining econometric analysis with qualitative comparative case studies in three analytical tasks. Task 1 reviews and analyses first-generation and updated NDCs as well as fiscal reform data. Task 2 examines cross-country experiences implementing carbon fiscal reforms and social protection design options to achieve progressivity and poverty reduction. Task 3 compares the German with a developing country experience to analyse how interest coalitions shape ambition and actual implementation of carbon fiscal reforms. Beyond academic insights, we will deliver policy recommendations to support a just transition to carbon neutral economies with carbon fiscal reform.