Uncomfortable Truths About Climate Change, Carbon Taxes And Inequality
https://www.forbes.com/sites/jeffrey.../#21ad86cd7a1d
Jeffrey Dorfman Contributor
Policy I use economic insight to analyze issues and critique policy.
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Demonstrators wearing yellow vests perform a human tower on the Champs-Elysees avenue Saturday, Dec. 15, 2018 in Paris. (AP Photo/Kamil Zihnioglu)
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While the
Yellow Vest protests in France are motivated by more than just opposition to an increase in the tax on gasoline, that proposed gas tax increase was an important rallying point and has now been cancelled by President Macron’s government. These events coinciding with both a new UN report on the worldwide failure to act on climate change and a UN conference hoping to nudge countries toward compliance with the Paris Agreement on climate change point to a huge problem:
most policies to slow or halt climate change have costs that fall heaviest on the poor.
While the global elite and some people living in particularly vulnerable locations place great importance on aggressively addressing climate change right now and a
majority of those polled around the world agree it is a serious problem, much of the world population in less concerned. Further, climate policy has become entangled with inequality in the opinions of many, with widespread belief it is up to the rich to pay for the necessary steps. In fact, an oft-heard refrain in the French protests was that the rich were not being asked to do their fair share.
Yet, by definition, carbon taxes (and the point of the French gas tax is to tax the carbon emissions from using gasoline) do ask everyone to pay their fair share. A carbon tax is designed to make products that emit carbon more expensive by an amount proportional to the emissions released to the atmosphere. If the carbon tax is placed on all sources of carbon emissions, it is, by definition, fair because everyone is paying based on their individual carbon footprints. If such a tax is regressive (forcing lower income households to spend a higher percentage of their income on it), that would be a result of those households emitting more carbon per dollar of spending.
If people in the suburbs buy more gasoline because they drive everywhere while Parisians live more densely, walk, and use the Metro or RER train to move around the city, then Parisians are emitting less carbon. If the rich spend less of their income on things that emit carbon, then a carbon tax will be regressive. People may not like the incidence of a carbon tax, but one cannot call it unfair as long as government does not pick only specific sources of carbon to tax.
The general belief, however, is that carbon taxes will be regressive and that such a situation is neither tolerable or politically sustainable. When carbon taxes are focused only on energy, they are
more regressive than if they are levied more broadly on all sources of carbon emissions, so if politicians wish to appease those concerned about the environment and inequality at the same time, an economy-wide carbon tax would be superior to fossil-fuel taxes.
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Politicians are certainly free to use the revenue collected from carbon taxes in redistribution schemes to make the total policy less regressive, or even progressive (weighing more heavily on the rich). That is, of course, unrelated to the carbon taxes themselves which are regressive by their nature, as are virtually all environmental policies simply by virtue of the relative consumption patterns of the rich (more service-focused) and poor (more goods-focused).
Possible ways to redistribute carbon tax revenues to form a politically palatable package include: using the revenues to replace (some) payroll taxes, dedicating the funds to healthcare subsidies, or simply returning the money in the form of a per capita dividend. A myriad of additional schemes is available with no limit other than the creativity of those making the proposals.
The French protests placed center-stage the uncomfortable fact that climate change policies (and environmental policies in general) tend to be regressive in nature, placing heavier economic burdens on the poor. This is not necessarily unfair if people with lower incomes spend a higher percentage of their money on carbon-emitting (or environment-harming) goods and services. However, politically, the French protests make clear that the success of pro-environment policies that are inequality-increasing depends on some inequality-reducing offset being paired up with the first policy to make an inequality-neutral or inequality-shrinking total package.
The uncomfortable fact is that without some partner policy to make the policies attractive to those who care more about inequality than the environment, these policies will not be politically sustainable in much of the world.
If you cannot sell carbon taxes on their own in France, there aren’t many places you can.
Jeffrey Dorfman is a professor of economics at The University of Georgia. His last popular press book is an e-book, Ending the Era of the Free Lunch. You can follow him on Twitter @DorfmanJeffrey
