Piketty (and Chancel) on Climate Equity

Remember Thomas Piketty, recently famous for a book named Capital in the Twenty-First Century? Well the very same Thomas Piketty (Paris School of Economics), together with Lucas Chancel (IDDRI, Paris School of Economics) has just published a paper called Trends in the global inequality of carbon emissions (1998-2013) & prospects for an equitable adaptation fund. And a fascinating paper it is!

Trends in the global inequality of carbon emissions is a call for a global progressive carbon consumption tax (with a 0% marginal rate for those below a key threshold) that is designed to provide $150 billion a year for the global adaptation fund (a key climate fund that, while formally established, is woefully underfunded).

The crucial thing here is that Chancel / Piketty explicitly seek a globally progressive tax on individuals rather than countries. They do this for a number of reasons, but first among them is the judgement that inequality between people has (since 2013) become a greater source of emissions inequity than inequality between countries:

“Our estimates also show that within-country inequality in CO2e emissions matters more and more to explain the global dispersion of CO2e emissions. In 1998, one third of global CO2e emissions inequality was accounted for by inequality within countries. Today, within-country inequality makes up 50% of the global dispersion of CO2e emissions. It is then crucial to focus on high individual emitters rather than high emitting countries.”

Here’s the key graphic:

Piketty_english

Here’s a concise description of the entire paper, from the abstract:

“This study presents evolutions in the global distribution of CO2e emissions (CO2 and other Green House Gases) between world individuals from 1998 and 2013 and examines different strategies to finance a global climate adaptation fund based on efforts shared among high world emitters rather than high-income countries. To this end, we combine data on historical trends in per capita country-level CO2e emissions, consumption-based CO2e emissions data, within-country income inequality and a simple income-CO2e elasticity model. We show that global CO2e emissions inequalities between individuals decreased from Kyoto to Paris, due to the rise of top and mid income groups in developing countries and the relative stagnation of incomes and emissions of the majority of the population in industrialized economies. Income and CO2e emissions inequalities however increased within countries over the period. Global CO2e emissions remain highly concentrated today: top 10% emitters contribute to about 45% of global emissions, while bottom 50% emitters contribute to less than 10% of global emissions. Top 10% emitters live on all continents, with one third of them from emerging countries.”

That last line is extremely important, and there’s more where it came from. The authors discuss the top, bottom, and middle regions of the global income / emissions distribution and are able to tell us that, counting “indirect (or consumption-based) emissions,” the emissions rates for the richest 1% of Americans (about 300 tCO2e / year) are likely representative of the top 1% around the planet. That, in the middle of the global distribution (where people emit about 7 tCO2e per person per year), we find “the top 1% earners from Tanzania, the upper middle class (7th decile) in Mongolia and China as well as poor French and Germans (respectively 2nd and 3rd income deciles,” and that, at the bottom of the global distribution, we have, for example, the poorest 7% of the population of India, (at about 0.15 tCO2e).

Here are three reasons that this paper deserves attention:

1) Paris will be a new beginning for the climate negotiations, but only a new beginning. If we’re to scale to the necessary global mobilization at anything like the necessary speed, we’re going to need a lot more than Paris can possibly deliver. In particular, we’re going to need a significant amount of international finance for energy-sector leapfrogging, adaptation, and loss & damage.

2) We need to start talking about progressive climate taxation, on a global scale, and about progressive vs. regressive financing systems in general. And the Chancel / Piketty proposal is tailor made to get that conversation started. For one thing, it’s restricted to the adaptation side of the climate problem, which is much in danger of being sidelined by a mitigation-focused regime. We have to address this problem, and if you’re serious, you know it. This offers an opening that Chancel and Piketty are happy to take.

3) More generally, the Chancel/Piketty proposal is strongly consistent with an approach that uses quantitative indicators to represent fundamental equity principles in order to operationalize equity. Such approaches are essential for success in the post-Paris world, because they enable meaningful equity review of individual national pledges of action. This is a key point, essential in the deeper debate about climate equity, which is exactly the debate that Chancel / Piketty are here intervening into.

Here are some quick points about the Chancel / Piketty approach. I’ve made them by way of a comparison between it and the Climate Equity Reference Project (CERP) approach that this site is strongly associated with:

* Chancel / Piketty propose a progressive carbon consumption tax. The CERP approach is a progressive responsibility and capacity index (cum tax), which is calibrated to a global carbon budget. The two approaches are similar in lots of ways – for example, they are both universal, in the sense that they include all people in all countries. There are no annexes or anything like them; rather, there are principle-based numeric indicators, which are applied to individuals within countries. Also, the two approaches produce broadly similar results.

* Both approaches begin by taking income inequality within countries into explicit account. Chancel / Piketty do this a bit differently than CERP – their analysis begin with a single pool of humans that is normalized by PPP income, and countries only come in later, while CERP begins with national income distributions — but at the end of the day this is no difference at all. Both approaches calculate and highlight dynamic fair shares at the national level in a way that reflects inequality within countries. This is a fundamental similarity between the two systems, and the breakthrough point.

* Chancel / Piketty use consumption-based accounting exclusively. This makes a lot of sense, especially in the context of their specific proposal, which is for a carbon consumption tax. The CERP approach also supports consumption-based accounting, but this in addition to the production-based accounting that is more standard in the climate world. The Climate Equity Reference Calculator allows you to run then numbers either way and, of course, Chancel and Piketty discuss both options.

* Crucially, both Chancel / Piketty and the CERP approach highlight progressivity, and both do so by using exemption thresholds (just like the exemption level in an income tax) below which an individual is judged to have no capacity, or obligation, to expend their meager resources in fighting the climate threat.

* In the Chancel / Piketty proposal, the exemption threshold is defined by the global average per-capital emission rate, which they give as 6.2 tCO2e per year; only individuals with emissions above this threshold are taken to have global obligations, in proportion to their emissions above the threshold.

* In the CERP approach, the exemption threshold is defined as a “development threshold” and, secondarily, by a “luxury threshold” that can be used to further increase progressivity. The development threshold is given a default value of $7,500 PPP per capita. This can be changed by the user, but it shouldn’t be changed much, because, as its name indicates, it is set at a level that exempts those below a modest level of basic development. from climate obligations.

* Finally, both Chancel / Piketty and the CERP approach can be used to support a variety of “progressive” approaches. In the CERP approach, the user selects their own preferred approach to equity, including both their approach to responsibility and their approach to progressivity, and the result is applied to both the mitigation and the adaptation challenges. Chancel /and Piketty, for their part, see the mitigation INDCs as evidence that “emerging and developing countries have already stopped hiding behind their poor,” and they thus focus on the challenge of adaptation funding.

Here, they moot a range of specific possibilities:

* Option 1: A global tax on emissions: a progressive tax on all emissions above the global average (i.e. 6.2 tons CO2 per capita). North Americans would contribute to 36% of the fund, vs. 21% for Europeans, 15% for China, and 20 % for other countries.

* Option 2: Apply the levy to the top 10% individual emitters in the world (i.e. all individuals emitting more than 2.3 times world average emissions, in proportion to their emissions in excess of this threshold. North Americans would contribute to 46% of the fund, vs. 16% for Europeans, 12% for China. (This, by the way, is where they locate the “reasonable middle ground.”)

* Option 3: the effort is shared by all top 1% emitters in the world (i.e. all individuals emitting more than 9.1 times world average emissions). North Americans would then contribute to 57% of the tax, vs. 15% for Europeans, 6% for China. In these strategies, European contributions to adaptation finance would decrease in proportion compared to today, but largely increase in absolute terms. American contributions would increase both in absolute and relative terms

Chancel / Piketty also take a realist turn and discuss implementation by way of an aviation levy designed to finance the adaptation fund. They note that this solution might be easier to implement, but is less well targeted at top emitters. They suggest that a progressive tax on all air tickets (€180 on first class and €20 on Economy) would provide the $150 billion that they have chosen as their funding target, though they willingly add that, by UNEP’s analysis, this figure is too low and that more will be needed.

They end modestly, noting that “a significant number of high emitters can now be found in emerging countries,” that since Kyoto, “inequalities increased between the bottom of the CO2e emissions pyramid and the middle, and were reduced between the middle and the top,” and that it is thus commendable that “high emitters in China, India or Brazil” have stepped up on the mitigation front. Then they immediately add that, in any progressive system, “the vast majority of high emitters still come from rich countries (particularly North America).” They hope, finally, that their “examination of the implications of a global progressive carbon tax on all world emitters can contribute to a more informed discussion.”

So do we.