Good Ideas Department: Let’s implement a luxury carbon tax, because not all carbon is created equally

Philippe Benoit, a research scholar at Center on Global Energy Policy at Columbia, has a good idea, a luxury tax on carbon. As he explained it in an op-ed in The Hill:

You’ll get no argument from me!

For $250,000, the super-rich will soon be able to visit sub-space. Meanwhile, back on earth, American workers will drive pickup trucks to their jobs and families will keep their thermostats low to save on heating costs.

All three will generate greenhouse gas emissions. Scientists explain that the climate impact of carbon emissions is the same irrespective of why and where they are created. That, in part, is why many economists want to tax all carbon the same. 

But does it make sense from a policy perspective to ignore why and how the carbon was created? Is it sensible to treat the emissions from highly discretionary and luxurious consumption by the rich the same as those generated to meet basic needs of middle-class and poorer households? There is an argument to say no.

Maybe not all carbon is created equal. Unsurprisingly, just as there is income inequality, there is inequality in carbon emissions. In the United States, the richest 10 percent emit four times more than the bottom 50 percent; the disparity is even greater at a global level and for the top 1 percent. Billionaires and millionaires enjoy a lavish carbon-heavy lifestyle that isn’t accessible to middle-class families. Flying transatlantic first class in the front of the plane generates four times more carbon than riding in the back in tightly-packed economy.

Or consider high-end sports cars or yachts or private jets (remember the criticism leveled against Prince Harry and Meghan Markle for taking private jets while advocating for action on climate).

The luxury emissions market is big and getting bigger. Americans purchase 2 million luxury vehicles a year, while luxury yacht sales total $5.7 billion globally and is expected to grow to $10.2 billion by 2025. 

Soon there will be space tourism, a novel but GHG-intensive activity restricted to the super-rich. And the potential for luxury emissions is growing as the number of millionaires worldwide increases from 42 million today to a projected 63 million in 2024. 

Yet, we all share one common carbon budget, estimated at below 1,100 GtCO2. In contrast to incomes where “more is better” and even extravagant spending by the rich can produce jobs for working-class families, carbon is a “zero-sum” game: the more the rich emit through their lavish lifestyles, the less there is for everyone else.

While wealth globally keeps increasing, the carbon budget keeps getting smaller, eaten up in part by the high-carbon extravagant activities of the rich. A luxury carbon tax could be used to charge the rich for this climate extravagance, one that wouldn’t apply to the emissions generated by working families in making ends meet.

And in deciding how much to charge, we don’t need to follow the traditional approaches of tying the tax to the “social cost of carbon” or using a uniform rate based on carbon content. Instead, we could apply a tax rate well above the carbon impact of these extravagant emissions precisely because they constitute a wasteful use of our common carbon budget. 

How much should we tax someone for spewing carbon on their $52 million visit to the International Space Station? A lot.”