fairer carbon tax

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To make carbon taxes fairer and more effective, give people free green services rather than cash
A well designed carbon tax could reduce carbon emissions and poverty at the same time; A new study shows how.
December 7, 2021

Using revenues from a carbon tax to provide free green electricity and transport would reduce carbon emissions much more strongly—and more fairly—than would a carbon tax alone or returning revenues to the public in the form of cash rebates, a new analysis suggests.

The study is part of a growing body of research exploring how to implement carbon taxes in an equitable way. “Policy makers need to ensure that the transition to net zero is socially just and supports wellbeing,” says study team member Milena Büchs, a social scientist and sustainability researcher at Leeds University in the UK.

It’s well-known that carbon taxes on everyday resources such as home energy and motor fuel “tend to put higher burdens on low-income compared to high-income households even though the latter contribute far more to climate change than the former,” Büchs says

One potential solution is to return revenues from a carbon tax to the public on an equal-per-person basis. In theory, low-income households would receive more in rebates than they paid in tax. But little research has looked at what these rebates actually accomplish in terms of emissions reductions or helping people on the lower end of the income scale get what they need to live comfortably.

In the new study, Büchs and her colleagues analyzed data from a survey of household spending that covered more than 275,000 households across 27 European countries. They used a computer model to estimate household greenhouse gas emissions for the different categories of expenditure.

Then, they modeled how a carbon tax of 80 Euros per tonne of carbon dioxide and various compensation policies would affect people’s spending, carbon emissions, and ability to afford basic necessities.

A carbon tax alone would reduce home energy emissions by 1.21% and motor fuel emissions by 1.56% across the 27 countries, the researchers report in Environmental Research Letters. Other studies have found similarly underwhelming results: a carbon tax alone doesn’t do a great job of reducing emissions by individuals because home energy use and transportation aren’t really luxury items. People still need to heat and power their homes and get from place to place regardless of the price of carbon.

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The carbon tax and rebate option fares even worse from an emissions perspective: in this scenario home energy emissions would fall by just 0.33% and motor fuel emissions by 0.71%. Essentially, if you give people money but low-carbon substitutes for necessities aren’t readily available, then emissions savings from a carbon tax will be pretty minimal.

What’s more, because the carbon tax increases the price of energy and motor fuel, the tax-and-rebate option actually increases the proportion of households that are likely to have trouble affording these basic necessities.

The researchers also modeled what would happen if revenues from carbon taxes were used to provide vouchers for free green electricity and public transport. This policy would reduce home energy emissions by a much heftier 13.4% and motor fuel emissions by 23.8%, the researchers found.

“Giving everyone in society a basic amount of free renewable electricity and public transport could significantly reduce emissions and ensure that everyone’s basic needs are met,” Büchs says.

The reason: “The provision of free green services has higher potential to reduce emissions because governments would need to invest more rapidly in renewable electricity and public infrastructures so that higher demand is met,” she explains. In other words, if you know they’re coming, you’d better build it.

The vouchers would also reduce the number of households struggling with home energy and transportation costs, and slightly reduce poverty overall.

Putting such a policy into practice would be complex, since national governments often implement carbon taxes but local and regional governments tend to be responsible for providing electricity and public transit services. “I think a multi-level governance system would be required,” Büchs says. She plans further studies to of the potential for free green services, such as determining how the public can be involved in decision-making and investigating political and public support for the policy.

Source: Büchs M. et al.Fairness, effectiveness, and needs satisfaction: new options for designing climate policies.” Environmental Research Letters 2021.

Image: @Anthropocene

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