How to tax luxury to save the climate?
Luxury-focused carbon taxation improves fairness of climate policy
DOI: 10.1016/j.oneear.2023.05.027
How to tax luxury to save the climate?
Did you know that some carbon emissions are more harmful to the environment than others? This is because they come from activities that are not essential to human life, such as leisure travel, jewelry or sports cars. These are the so-called luxury emissions, and they contribute a lot to global warming.
But what can we do to reduce these emissions? One possible solution is to levy higher taxes on them, according to a study published in the journal One Earth .
The researchers analyzed the domestic carbon footprints of 88 countries and proposed a tax policy that differentiates luxury emissions from basic emissions, such as those from heating or public transport.
The result was surprising: if all countries adopted this policy, they would achieve 75% of the Paris Agreement target of limiting global temperature rise to well below 2°C by 2050. Furthermore, this policy would be fairer, as it would not affect low-income families so much, who spend more on basic needs than on luxuries.
In the United States, for example, vacation travel would be taxed at a higher rate than heating.
They used this model to test the outcome of their luxury carbon tax rates or a flat carbon tax rate. Under a flat tax rate, 37% of global carbon tax revenue would come from luxury purchases. This rises to 52% in 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 was also slightly better at reducing annual household emissions in the very short term.
The researchers note that this may be because luxury purchases are more viable than an essential purchase if the price rises.
While the luxury tax proved to be 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 flat carbon tax already targets high-income groups by definition.
In contrast, the luxury carbon tax is more beneficial in terms of fairness when applied to high-income countries. Such a tax may better account for flexible, non-essential purchases in countries like the United States, where it is difficult to avoid carbon-emitting activities such as driving a car in a low-income lifestyle.
While this type of policy can make significant progress in reducing global emissions, the researchers also note that this goal can be difficult to achieve in practice. Few countries have a carbon tax scheme that is currently as stringent. Luxury-focused carbon taxation also targets high-income groups, who may be better prepared to lobby against the enactment of such a policy.
The authors of the study argue that this is an effective and equitable way to combat climate change, encouraging people to consume fewer products and services that generate a lot of carbon emissions. They also suggest that proceeds raised from taxes be used to fund clean energy and sustainable development projects.
What do you think of this idea? Would you be willing to pay more for a luxury product or service if it helped save the planet? Leave your opinion in the comments!
Reference:
One Earth, Oswald et al. “Luxury-focused carbon taxation improves fairness of climate policy” https://doi.org/10.1016/j.oneear.2023.05.027
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in EcoDebate, ISSN 2446-9394
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