Climate Change, Taxes, and Equity: Instructions for Use

Climate change is not only configured as a major failure of the economic system that will generate, and is already doing so, high net losses for our societies.

It is a distributive bomb tilted towards those who have less, both countries and people.

The explanation is easy: the States and households that have contributed the most to this problem are those with the greatest means, contrary to those that suffer the most because the ability to adapt to climate change is also related to the availability of economic resources.

As if that were not enough, the essential climate mitigation policies, fundamentally aimed at reducing emissions, have costs that in many cases are borne to a greater extent by those who have less.

This is something we already knew a long time ago,

The foregoing has led some commentators and political decision-makers to advocate the incorporation of taxes on wealth and windfall profits from the fossil conglomerate as part of climate mitigation policies.

At first sight, these are attractive proposals: they focus on groups with a clear responsibility for the problem, with positive distributive effects, and great revenue-raising capacity.

However, it is advisable to explore more carefully the usefulness of these figures in this area to avoid formulating simple and popular solutions to complex problems that, by diverting interest and emphasis from other fundamental and priority fiscal instruments, may compromise the effectiveness of policies. climate mitigation.

It is convenient at this point to return to the main conclusions of the recent white paper on tax reform which, despite paying great attention to distributive issues, does not incorporate the preceding alternatives in its extensive menu of environmental proposals.

It includes the central role of certain taxes to progress in decarbonization, in coordination with other regulatory alternatives of a diverse nature, mainly through the tax on the consumption of fossil fuels and the purchase and possession of polluting equipment (for example, vehicles ).

It also indicates that the possible regressive impacts of some of these taxes can be easily offset by using part of the collection collected, selectively and not related to emissions, to households with less economic capacity.

At once,

redirecting the subsidies that are now widespread to replace polluting equipment to the poorest households would have very positive distributional impacts.

Also keep in mind that some of these taxes, such as those related to aviation or large and powerful vehicles, penalize the richest households to a greater extent.

In fact, the elimination of automotive fuel subsidies (or the increase in their taxation) are generally progressive measures in developing countries.

As if that were not enough, the very action of these taxes will contribute to the reduction of the benefits (ordinary or extraordinary) of the fossil conglomerate and will facilitate the transition to a more sustainable business world.

In summary, a good use of environmental taxation allows progress in several objectives,

This does not imply that the taxation of wealth should not play a relevant role in the fight against climate change, but for other reasons.

Climate crises like the one last summer, with its immense impacts on the less affluent, and the recent creation of the fund based on the principle of

for developing countries, they will require a huge volume of resources to facilitate adaptation and compensate the losers of climate change.

A large part of these additional resources will have to come from our tax systems and it is unlikely that environmental taxation, especially if it already has to use part of its collection for distributive compensations, can provide them.

Obtaining these new resources must be guided by the principle of economic capacity and there the taxation of wealth and large fortunes can and should play a relevant role.

An expert in technological solutions to decarbonization, Mark Jacobson (Stanford), has just published a book in which he points out that it does not take miracles but rather ambition to apply existing clean technologies without delay.

Something similar happens in the tax field: we do not have to invent anything new or create unnecessary confusion, simply use existing taxes to rigorously, transparently and decisively address two related but different issues: the great challenges of climate mitigation and obtaining of additional resources to deal with the uneven climate impacts.

Xavier Labandeira

is Professor of Economics at the University of Vigo and Ecobas

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