‘Luxury’ carbon tax could be fairer than a flat carbon tax says study

Climate change has never been an equal arrangement. Those who are poorest are already receiving the brunt of climate change, while the richest have pumped the most emissions into our atmosphere.

So, providing a more ‘just’ way of taxing our carbon could be a way to stop cementing these inequalities further.

A team of researchers has looked at one version of this – a carbon tax on luxury activities, in a new study published in the Cell journal One Earth.

“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, a University of Leeds economist.

“In this study, we test policies derived from this knowledge for the first time.”

For those few countries that have them, carbon taxes are usually equally priced across all types of emissions or target a specific high carbon source – like electricity or fuel.

However, as the researchers point out – this is not an equal situation.

“Some emissions are produced while contributing to decent living standards; they cover essential needs such as housing, cooking, or accessing healthcare. Others are generated during the pursuit of luxury; for example, when flying long-distance on holiday or driving the convertible Porsche during summer,” the researchers write in their new paper.

“Here we model an alternative carbon tax design accounting for the distribution of household consumption and carbon footprints across 88 countries covering the global north and south.

In the new study’s model, under a uniform carbon tax rate, 37% of global carbon tax revenue would come from luxury purchases. But this goes up to 52% under a luxury-focused tax program. 

The luxury tax model reduces global household emissions by 6% compared to a uniform tax rate, while also lowering inequalities between rich and poor.

The team suggested that by 2050, the policy would save around 100 gigatons of carbon, which is 75% of what’s needed for households to stay within 2 degrees of warming.

In low income countries like South Africa, they also found that flat carbon taxes could also be fair because low income households spend so much less on fuel and heating.

It’s worth noting there are some potential road blocks in the way to implementing a luxury carbon tax. In most countries wealthy people have greater influence over political outcomes, and more ability to lobby any proposed changes.  

“The purpose of this study is not broad discouragement of materialistic lifestyles,” the researchers wrote.

“Luxury carbon taxes are not sin taxes; they are ecologically motivated and are considerate of distributional implications. They originate from a realist’s perspective on global problems.”

Finally – it’s also worth noting that this is not a wholistic solution, just one piece in a much larger puzzle. For example, It was shown that the biggest contribution to carbon emissions from the wealthiest 1% of the population is from their capital investments, which account for about 70% of their total emissions.

“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.”