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Is a luxury carbon tax a fair and equitable way to tackle climate change?

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Is a luxury carbon tax a fair and equitable way to tackle climate change?

Two new studies make a consistent case for targeting high-end energy use and energy inequality to reduce carbon emissions
July 25, 2023

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Reducing the amount of energy used by the top quintile of energy users in Europe could cut total household greenhouse gas emissions by almost 10%, according to new research. The study is one of two recent efforts to grapple with how to reduce energy use and carbon emissions in a fair and equitable way, both within and across countries.

“Targeting ‘luxury energy use’ and energy inequality more broadly are important components of tackling climate change,” says study team member Milena Büchs, a sustainability researcher at the University of Leeds in the United Kingdom.

Buchs and her colleagues analyzed spending data collected from 275,614 households across 27 European countries. They sorted the range of energy use into percentiles, and modeled what would happen if energy use were capped at the 80th percentile, or 170.2 gigajoules per person per year.

Reducing energy use by the top 20% of users in this way would reduce emissions by 9.7%, the researchers report in the journal Nature Energy. [1]

Such reductions are important because past studies have shown that decarbonizing the energy system alone won’t be enough to address the climate crisis. People, especially those living in high-income countries where energy use is high, will also have to reduce the amount of energy they use in order to meet global climate targets.

 

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Still, even in high-income countries there are some people who lack access to sufficient energy to meet basic needs. So the researchers also analyzed the effect of bringing the bottom quintile of energy users up to the 20th percentile. This would reduce the emissions saved by the 80th percentile cap on energy use, but by only 1.4 percentage points.

In other words, implementing both a “floor” and a “ceiling” on energy use in Europe would cut emissions by 8.3% overall.

“Tackling energy poverty can sometimes be regarded as problematic from a climate change perspective,” Büchs says. So the relatively small effect of increasing energy consumption by the lowest users was somewhat surprising.

“It is good news and suggests that we can strive to meet everyone’s needs and still remain within planetary boundaries, the important thing is to tackle high energy use,” she adds.

In a second study, a different group of researchers analyzed the effect of a tax on ‘luxury carbon’ in 88 countries around the world.

Existing carbon taxes tax every ton of carbon dioxide emitted into the atmosphere at the same rate. Past studies have shown that in high-income countries, such taxes disproportionately burden the poor – because they spend more of their income on basics like food, heating, and transportation – but have a relatively modest effect on overall emissions.

So the researchers modeled the effect of a tax that puts a higher price on carbon from luxury activities (such as vacation flights) than on carbon from basic necessities (such as home heating) on household carbon footprints.

The luxury carbon tax is fairer in all countries, the researchers report in the journal One Earth. [2] High-income households reduce their per-capita emissions more than low-income households under the luxury carbon tax, and also bear more of the financial burden.

It is also more effective than the one-size-fits-all carbon tax at producing immediate emissions cuts – precisely because it affects luxuries that people can forgo without a huge disruption to daily life.

However, the luxury carbon tax is most effective at improving fairness in high-income countries. In low-income countries, low-income groups spend relatively little even on necessities so even a one-size-fits-all carbon tax disproportionately targets the rich.

If all 88 countries adopted the luxury carbon tax strategy, it would save some 100 gigatonnes of carbon emissions by 2050 – three-quarters of what households must cut in order to keep global warming under 2 °C and one-third of the cuts needed to keep warming to 1.5 °C.

Neither the luxury carbon tax nor the 80th percentile energy cap would be sufficient to meet climate targets on their own. But fair climate policies might make people more inclined to support the other changes that are needed.

Policies such as the 80th percentile energy cap “help to reduce emissions and create a fairer distribution of energy use, which in itself could be important to increase acceptance for radical and rapid climate action among the public,” Büchs says.

Sources:

[1] Büchs M. et al.  “Emissions savings from equitable energy demand reduction.” Nature Energy 2023.

[2] Oswald Y. et al. “Luxury-focused carbon taxation improves fairness of climate policy.” One Earth 2023.

Image: ©Anthropocene Magazine

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