A study published in One Earth suggests that taxing luxury items like flights and SUVs would be more effective in reducing carbon output than current schemes. The research suggests that taxing luxury items would cut more greenhouse gas emissions than a blanket carbon levy on all goods. Carbon taxes, which are fees companies pay for emitted carbon above a set limit, encourage manufacturers and distributors to reduce their carbon footprint and invest in environmentally-friendly manufacturing or delivery processes.
Carbon taxes are universally applicable across all economic sectors, often earmarked for green energy research and development. 27 countries have significant carbon taxes, including Argentina, Canada, Chile, China, Colombia, Denmark, the EU, Japan, Kazakhstan, South Korea, Mexico, New Zealand, Norway, Singapore, South Africa, Sweden, the UK, and Ukraine. The EU ETS, created in 2005, allows companies to buy and sell carbon they emit, with a 43% reduction in emissions from power, heat generation, and energy-intensive industrial sectors since its inception.
Yannick Oswald's team modeled the effects of luxury-only carbon taxing on 88 countries, representing 90% of the global population. They proposed a scheme with a higher tax for luxury goods and a lower tax for basic human needs. The US experiment showed an average national emissions reduction of 4.4% under the uniform tax, while the luxury goods tax increased it to 4.8%.
The study suggests that adopting luxury taxes in 88 countries could deliver 75% of the emissions reductions needed to keep global warming below 2°C by 2050. However, this scheme would need to be implemented promptly, universally, and with rising carbon prices. The benefits of this scheme include reducing inequality, fair distributional effects, and reducing the need for a large data flow on luxury items. Implementing a luxury tax would also face political challenges, as taxing the wealthy often requires substantial justification from voters.