Today: May 30, 2024
Today: May 30, 2024

A carbon tax on investment income could be more fair and quickly make it less profitable to pollute − here’s why

Share This
August 17, 2023
The Los Angeles Post - The Conversation
Investor pressure could drive down greenhouse gas emissions. Tippapatt/iStock/Getty Images Plus

About 10 years ago, a very thick book written by a French economist became a surprising bestseller. It was called “Capital in the 21st Century.” In it, Thomas Piketty traces the history of income and wealth inequality over the past couple of hundred years.

The book’s insights struck a chord with people who felt a growing sense of economic inequality but didn’t have the data to back it up. I was one of them. It made me wonder, how much carbon pollution is being generated to create wealth for a small group of extremely rich households? Two kids, 10 years and a Ph.D. later, I finally have some answers.

In a new study, colleagues and I investigated U.S. households’ personal responsibility for greenhouse gas emissions from 1990 to 2019. We previously studied emissions tied to consumption – the stuff people buy. This time, we looked at emissions used in generating people’s incomes, including investment income.

If you’ve ever thought about how oil company CEOs and shareholders get rich at the expense of the climate, then you’ve been thinking in an “income-responsibility” way.

While it may seem intuitive that those getting rich from fossil fuels bear responsibility for the emissions, very little research has been done to quantify this. Recent efforts have started to look at emissions related to household wages in France, global consumption and investments of different income groups and billionaires’ investments. But no one has analyzed households across a whole country based on the emissions used to generate their full range of income, including wages, investments and retirement income, until now.

We linked a global data set of financial transactions and emissions to microdata from the U.S. Census Bureau and Bureau of Labor Statistics’ monthly labor force survey, which includes respondents’ job, demographics and income from 35 categories, including wages and investments. We connected people’s wages to the emission intensity of the industries that employ them, and we based the emissions intensity of investment income on a portfolio that mirrors the overall economy.

The results of our analysis were eye-opening, and they could have profound implications for producing more effective and fair climate policies in the future.

A view from the top 1%

Both our consumption- and income-based approaches reveal that the highest-earning households are responsible for much more than an equitable share of carbon emissions. What’s more surprising is how different the level of responsibility is depending on whether you look at consumption or income.

In the income-based approach, the share of national emissions coming from the top 1% of households is 15% to 17% of national emissions. That’s about 2.5 times higher than their consumer-related emissions, which is about 6%.

In the bottom 50% of households, however, the trend is the exact opposite: Their share of consumption-based national emissions is 31%, about two times larger than their income-based emissions of 14%.

Why is that?

A couple things are going on here. First, the lowest earning 50% of U.S. households spend all that they earn, and often more via social assistance or debt. The top income groups, on the other hand, are able to save and reinvest more of their income.

Second, while high-income households have very high overall spending and emissions, the carbon intensity – tons of carbon dioxide emitted per dollar – of their purchases is actually lower than that of low-income households. This is because low-income households spend a large share of their income on carbon-intensive basic necessities, like home heating and transportation. High-income households spend more of their income on less-carbon-intensive services, like financial services or higher education.

Implications for a carbon tax

Our detailed comparison could help change how governments think about carbon taxes.

Typically, a carbon tax is applied to fossil fuels when they enter the economy. Coal, oil and gas producers then pass this tax on to consumers. More than two dozen countries have a carbon tax, and U.S. policymakers have proposed adding one in recent years. The idea is that raising the price of these products by taxing them will get consumers to shift to cheaper and presumably less carbon-intensive alternatives.

But our studies show that this kind of tax would disproportionately fall on poorer Americans. Even if a universal dividend check was adopted, consumer-facing carbon taxes have no impact on saved income. Generating that income likely contributed to greenhouse gas emissions, but as long as the money is used to buy stocks rather than consumables, it is excluded from carbon taxes. So, this kind of carbon tax disproportionately affects people whose income goes primarily toward consumption.

A profit-focused carbon tax

What if, instead of focusing on consumption, carbon taxes addressed greenhouse gases as an outcome of profit generation?

The vast majority of American corporations operate under the principle of “shareholder primacy,” where they see a fiduciary duty to maximize profit for their investors. Products – and the greenhouse gases used to make them – are not created for the benefit of the consumer, but because the sale of those products will benefit the shareholders.

If carbon taxes were focused on shareholder income linked to greenhouse gas emissions rather than consumption, they could target those receiving the most economic benefits resulting from these emissions.

The impact

A couple of interesting things might result, particularly if the tax was set based on the carbon intensity of the company.

Corporate executives and boards would have incentive to reduce emissions to lower taxes for shareholders. Shareholders would have incentive, out of self-interest, to pressure companies to do so.

Investors would also have incentive to shift their portfolios to less-polluting companies to avoid the tax. Pension and private wealth fund managers would have incentive to divest from carbon-polluting investments out of a fiduciary duty to their clients. To keep the tax focused on large shareholders, I could see retirement accounts being excluded from the tax, or a minimum asset threshold before the tax applies.

[embed]https://youtube.com/watch?v=CgA0UgSEDjI&feature=oembed[/embed]

Jared Starr explains the new study’s findings and the implications.

Revenue generated from the carbon tax could help fund adaptation and the transition to clean energy.

Instead of putting the responsibility for cutting emissions on consumers, maybe policies should more directly tie that responsibility to corporate executives, board members and investors who have the most knowledge and power over their industries. Based on our analysis of the consumption and income benefits produced by greenhouse gas emissions, I believe a shareholder-based carbon tax is worth exploring.

The Conversation

Jared Starr does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

The post A carbon tax on investment income could be more fair and quickly make it less profitable to pollute − here’s why appeared first on The Los Angeles Post.

Popular

Snoop Dogg look-alike mannequin fools no one: CHP's latest traffic stop

Santa Fe Springs, CA- A driver in California was caught off guard when pulled over by the California Highway Patrol for driving in the carpool lane with a mannequin posing as a passenger in the front seat. According to the Santa Fe Springs division of the CHP, the driver’s attempt to bypass traffic by using a dummy resulted in the issuance of a ticket. The story surfaced after CHP’s Santa Fe Springs office shared the encounter on social media. The post showed a picture of the mannequin, sporting a black hoodie and sunglasses, seated in the front. Many are curious,

Snoop Dogg look-alike mannequin fools no one: CHP's latest traffic stop

“Just shells,” kids plead, as mom faces $88K fine

PISMO BEACH, CA- A mother from California was fined $88,000 after her children mistakenly collected clams from a beach without a fishing license, thinking they were seashells. Charlotte Russ was with her family on a trip to Pismo Beach, famously called the “Clam Capital of the World,” when the incident occurred, according to ABC 7. The Department of Fish and Wildlife approached Russ and informed her that her children had collected 72 clams illegally. She was issued a ticket for the violation. “Right before we went, that’s when I opened it, and that’s when I saw the amount,” Russ shared.

“Just shells,” kids plead, as mom faces $88K fine

US Supreme Court won't hear Maryland school district gender identity case

The U.S.

US Supreme Court won't hear Maryland school district gender identity case

Judge rejects gag order on Trump in Florida documents criminal case

By Sarah N.

Judge rejects gag order on Trump in Florida documents criminal case

Former intelligence chief Dick Schoof proposed as Dutch PM

By Stephanie van den Berg and Bart H.

Former intelligence chief Dick Schoof proposed as Dutch PM

Related

Richard M. Sherman, who fueled Disney charm in 'Mary Poppins' and 'It's a Small World,' dies at 95

Richard M. Sherman, who fueled Disney charm in 'Mary Poppins' and 'It's a Small World,' dies at 95

After firing, Cavs embark on coaching search with All-Star Donovan Mitchell's future bigger priority

After firing, Cavs embark on coaching search with All-Star Donovan Mitchell's future bigger priority

Fed's Waller ponders future path of underlying interest rates

Fed's Waller ponders future path of underlying interest rates

Cavaliers fire coach J.B. Bickerstaff despite back-to-back playoff appearances and steady progress

Cavaliers fire coach J.B. Bickerstaff despite back-to-back playoff appearances and steady progress
- Advertisement -
Advertisement: Limited Time Offer