Guest author and PhD-student Stefan Dums from the Johannes Kepler University in Linz/Danube reveals his vision for the economically viable, logistically feasible tariff that just might be the ultimate solution to reduce global greenhouse gas emissions.
Why would it work so well? Because it targets the root of carbon-consumption habits: our wallets.
Every single one of us needs to change habits to save the planet. But do we even know how to change and what to do?
We as the consumers, who ultimately decide what the producers should provide us with, aren’t sure which consumer decisions will actually reduce our greenhouse gas footprints.
Some say electric cars are the answer. Others say no — that to produce the batteries is worse than driving an efficient car with a modern internal combustion engine.
The easiest (therefore most likely) parameter for us to follow when deciding whether or not to buy a good or service is its price. It’s simple: if it is too expensive for our wallet we will go for another, cheaper alternative.
Could we keep it this simple with the greenhouse gas footprint? Is there an easy and reliable way to incorporate the greenhouse gas footprint into the price?
If there is, we consumers would not need to inform our buying decisions with green cachets from certification organisations we might not trust. We could continue to stick to the price as the most important purchase decision criterion.
However, current ways of pricing the carbon dioxide footprint are not fair on the market. Consider this: a domestic steel producer has to pay a high price to be allowed to emit carbon dioxide into the atmosphere when he produces the steel. Meanwhile, he has to compete with imported steel from countries like China that might not impose such a charge onto their producers, so their prices are much lower.
What happens in this scenario is that domestic producers are pushed out of the market because their prices are too high compared to the imported steel.
Also, when you look into the CO2 emissions of highly developed countries it might seem as if their emissions are very low compared to lesser developed countries. But that is only because the CO2 emissions are measured on the production side, and the majority of their production has been shifted abroad. The more developed countries outsource production of the goods they consume and then look as if they are clean when, in reality, they just pushed the problem (and the blame) onto poorer countries.
If we had a tariff or tax levied at the point of consumption instead of the point of production, this might be the better answer to change our shopping behaviour.
The VAT — the Value-Added Tax — is an example of such a consumer-side tax. It doesn’t matter if the product is produced abroad and imported or produced domestically; the VAT is added to the net price at the point of purchase, which increases the consumer price.
The purpose of the VAT is purely to pour money into the cashbox of the government. You could even say it is an unfair tax that proportionally hits the poorest of our society harder than the richest.
Could we have something like the VAT to combat global CO2 emissions — a Carbon-Added Tax, or CAT? The Carbon-Added Tax would not be a set percentage of the purchase price like the VAT but would be based on the greenhouse gas footprint of the good or service from its full supply chain, increasing the net price of a good or service at the point of purchase.
A CAT can quickly change purchase behaviors and therefore global carbon emission but we need to make it feasible to implement.
So how do we do it? Please keep an eye out on this blog for a follow-up blog post about that.
In my next article I plan to give you insights into how the VAT could be repackaged to include a CAT, making it easy for financial authorities to levy the tax — hence more likely for it to succeed. I’ll also illustrate how the CAT would add the right amount to the net price based on the carbon footprint of a good or service along its lifecycle.
Written by: Stefan Dums
About the author Stefan Dums
Stefan Dums, born in 1967, studied Business Administration at the Johannes Kepler University in the late 1980s. He was under the first batch of students at the Institute of Corporate and
Regional Environmental Management at JKU Linz when they started to offer Environmental management as a specialistion for the Master in Business Administration. He wrote his Master Thesis about Synergies of ISO9000 and ISO 14000 and holds a postgraduate Masters degree from the Business School of Finance in Frankfurt in Banking & Finance.
After working 20+ years in Banking and Finance he went back to his roots: he went back to Uni Linz to write his doctor thesis Applied methodology to transition from the Value Added Tax to a Carbon Added Tax
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