Carbon taxes that focus on luxury consumption are fairer than those that
tax all emissions equally

Date:
July 11, 2023
Source:
Cell Press
Summary:
Not all carbon emissions are made for the same reason -- they range
from more essential purposes like heating a home to nonessential
'luxury' activities like leisure travel. However, proposals for the
implementations of carbon taxes tend to apply to all emissions at
an equal rate. This can give rise to and exacerbate inequalities. A
new analysis suggests taxing luxury carbon emissions at a higher
rate instead; if all 88 countries analyzed in this study adopted
the luxury- focused policy, this would achieve 75% of the emissions
reduction needed to reach the Paris Agreement's goal of limiting
climate change to well below 2DEGC by 2050.


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FULL STORY ==========================================================================
Not all carbon emissions are made for the same reason -- they range from
more essential purposes like heating a home to nonessential "luxury"
activities like leisure travel. However, proposals for the implementations
of carbon taxes tend to apply to all emissions at an equal rate. This
can give rise to and exacerbate inequalities. A new analysis published
on July 11 in the journal One Earth suggests taxing luxury carbon
emissions at a higher rate instead; if all 88 countries analyzed in
this study adopted the luxury-focused policy, this would achieve 75%
of the emissions reduction needed to reach the Paris Agreement's goal
of limiting climate change to well below 2DEGC by 2050.

"There is an injustice in terms of who uses energy, or carbon, for basic
or luxury purposes, but it hasn't been translated into explicit policy
yet," says Yannick Oswald, an economist at the University of Leeds. "In
this study, we test policies derived from this knowledge for the first
time." Several countries -- such as Canada and Mexico -- have active
carbon pricing policies. These policies either price all emissions at an
equal rate or target one type of emission, such as heat or fuel. However,
past research has shown that, in high-income countries, these policies
tend to affect low-income households the most while failing to have
a large impact on emissions. This might be because resources such as
heat or fuel make up a greater portion of low-income spending and are
difficult to do without.

To test the impact of a tax program that distinguishes between carbon
emissions from basic or luxury activities, the researchers built a model
based on household carbon footprints from 88 different countries. For
each country, they designed a tax rate for different types of purchases, ensuring activities that make up a greater proportion of low-income
spending would be taxed less relative to activities that make up a
greater proportion of high-income spending. In the US, for example,
vacation travel would be taxed at a higher rate than heating.

They used this model to test the outcome of either their luxury carbon
tax rates or a uniform carbon tax rate. Under a uniform tax rate, 37%
of global carbon tax revenue would come from luxury purchases. This
increases to 52% under a luxury-focused tax program.

Not only was the luxury tax "fairer" based on household income --
affecting low-income households less and high-income households more --
it also was slightly better at reducing yearly household emissions in
the very short-term.

The researchers note that this might be because it is more feasible to
forgo luxury purchases than an essential purchase if the price increases.

While the luxury tax proved fairer in all countries studied, the
researchers found that, in low-income countries, a uniform tax could
also be fair. In South Africa, for example, low-income households already
spend much less on fuel or heating than high-income households. Thus, a
uniform carbon tax is already targeting high-income groups by design. In contrast, the luxury carbon tax is most beneficial in terms of fairness
when applied to high-income countries.

This tax can better account for flexible, nonessential purchases
in countries like the United States, where it is difficult to avoid carbon-emitting activities like driving a car in a low-income lifestyle.

While this type of policy could make significant progress towards reducing global emissions, the researchers also note that this goal might be
difficult to achieve in practice. Few countries have a carbon tax scheme
that is currently this rigorous. Luxury-focused carbon taxation also
targets high- income groups, which may be the most equipped to lobby
against such a policy going into effect.

"Global support by the public for fair climate policies is high, and
it is likely that luxury-focused carbon taxes are similarly popular,"
says Oswald.

"Despite the model's limitations, the big takeaway is this: when designing climate policies, it is possible to pay attention to the different nature
of consumption purposes, and this would improve the fairness of climate
policy almost by default."
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Story Source: Materials provided by Cell_Press. Note: Content may be
edited for style and length.


========================================================================== Journal Reference:
1. Yannick Oswald, Joel Millward-Hopkins, Julia K. Steinberger,
Anne Owen,
Diana Ivanova. Luxury-focused carbon taxation improves fairness of
climate policy. One Earth, 2023; DOI: 10.1016/j.oneear.2023.05.027 ==========================================================================

Link to news story: https://www.sciencedaily.com/releases/2023/07/230711133113.htm

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