Taxing luxury goods and services like plane travel and SUVs would be a fairer and more effective way to slash household carbon emissions than applying a flat rate of carbon tax to all purchases, researchers have concluded.
Carbon taxes are levies applied to goods and services according to the carbon footprint associated with their manufacture or delivery. They are designed to raise revenue and reduce consumption of polluting products.
Such taxes are in operation around the world, but usually carbon is taxed at a uniform rate no matter what product it is associated with.
Some economists argue this is an unfair and largely ineffective system for tackling household emissions, particularly in higher-income countries. This is because some high-carbon spending, such as heat and fuel, is essential for many households and therefore carbon taxes will do little to change spending habits. Meanwhile, lower-income households – who spend a larger proportion of their income on essential goods and services – are hit harder by higher prices.
Yannick Oswald at the University of Leeds, UK, and his colleagues modelled the outcome if 88 countries adopted a policy of taxing luxury products at a higher rate. Each country categorised “luxury” goods slightly differently, based on how responsive consumers would be to a sharp change in prices.
In the US, for example, a uniform carbon tax of $150 per tonne was modelled against a variable tax on luxury goods, with carbon costing $100 per tonne for home heating, $200 per tonne for household appliances and almost $300 per tonne for a package holiday.
Under a uniform carbon tax, the average national emissions reduction was 4.4 per cent, compared with a 4.8 per cent reduction under the policy where luxury goods were taxed at a higher rate.
If all 88 countries adopted luxury taxes, it would deliver 75 per cent of the emissions reduction needed to limit climate change to well below 2°C by 2050, the study found.
Meanwhile, across the board – and particularly in higher-income countries – inequalities were reduced under the system of luxury taxes. A higher proportion of emissions reductions came from curtailed discretionary spending on transportation and holidays, rather than cutbacks to essentials, such as heat and electricity use. “It does have fairer distributional effects and better results in the short term,” says Oswald.
But implementing a policy of higher taxes for luxury spending would be incredibly complex, Oswald concedes. Just the challenge of collecting sufficiently detailed information, both from companies on the carbon footprint of their products and from households on their spending patterns, would be substantial, he says.
“If you want to implement such a policy in the long term, you need to have a good data flow feeding into something like this,” he says. “This is a big technical challenge.”
These luxury taxes would also be politically difficult to pursue. Patrick Diamond, a former head of policy planning at the UK prime minister’s office who is now at Queen Mary University of London, says voters need to be convinced that taxes on the wealthy are justified. “There is evidence that voters can be put off by gratuitous attacks on the wealthy.”
Josh Buckland, a former political adviser to the UK government, says a luxury carbon tax would be a “hard political message to land with voters”. But recycling the revenue from any luxury tax to support people on lower incomes to cut emissions, such as by investing in household energy efficiency, could boost the policy’s popularity among voters, he says.
However, others were more blunt. One commentator, a former political researcher speaking to New Scientist on the condition of anonymity, says a luxury tax wouldn’t be “politically viable at all” and wouldn’t be “practicable in a real-world government”.