Carbon pricing should include food

Matt Burgess-

Carbon pricing debates have been picking up steam worldwide in recent months. The issue has made a particularly strong resurgence in Canada, after being politically taboo for several years. As a growing chorus of economists and politicians of all stripes has echoed the clear economic rationale for carbon pricing, the debate in Canada appears to be finally moving towards a question of how, not whether, to price carbon.

Debates on how to price carbon have mostly focused on comparing carbon taxes, such as the one in British Columbia, and cap-and-trade, which was recently adopted in Quebec and California. In B.C., fuel purchases are taxed at rates for each fuel type proportional to the carbon emissions associated with burning them. In California, an annual emissions cap is set whose allocation among large emitters is determined by tradable permits.

Many economists favour a carbon tax over cap-and-trade; in short, because it requires negotiating a single variable (the tax level) rather than several (the cap and permit allocations); it requires fewer transaction costs; and it taxes consumption rather than production or investment, which tends to be less distortive. Indeed, B.C.’s carbon tax has been a clear success, credited with reducing fuel consumption by 16% with no discernable negative impact on the economy. Results from cap-and-trade, in Europe for example, have been more mixed.

However, even B.C.’s carbon tax fails to include one of the most important sources of emissions: food. Agriculture is responsible for roughly a third of global greenhouse gas emissions. Some of these emissions come from energy-use, which is already covered by fuel-based carbon taxes, but much of the emissions come from sources not covered, most notably land use.

Including land use from agriculture in carbon pricing has not yet been done because it is challenging for a number of reasons. Practically, there are accounting challenges. For example, do we tax only new land cleared, or do we tax based on how much land is used, recognizing that inefficient land use in one place tends to result in land clearing somewhere else? There are also political and social challenges. Opposition from agricultural lobby groups is likely. Imposing an extra cost on food could dangerously exacerbate food insecurity for low-income families if implemented carelessly.

Despite these challenges, here’s why pricing carbon emissions from food is worth it, even if it is done in a jurisdiction such as Canada or the United States unilaterally: The carbon footprints of different diets are strongly correlated with their adverse health impacts.

Government budgets throughout the developed world are increasingly buckling under the weight of rising healthcare costs. Non-communicable diseases associated with poor diets, such as obesity, heart disease, diabetes and certain cancers represent a significant and growing public health crisis; and they contribute substantially to healthcare costs. Obesity alone costs Canadians an estimated $4.3 billion, and Americans $190 billion annually. The global cost of non-communicable diseases over the next two decades is projected to be $47 trillion – equivalent to roughly 75% of current global GDP.

Even without including food, the IMF projected that carbon taxes would create significant domestic economic benefits by reducing healthcare costs associated with pollution. Adding food to the equation would only ratchet up these benefits. In short, climate change, the fiscal burden of health care, and non-communicable disease prevalence are three of the big challenges facing modern developed societies. A carbon tax on food creates market incentives addressing all three.

The practical challenges facing a carbon tax on food might even be surmountable. Recent studies have estimated the carbon footprints of most major food groups, addressing the accounting problem. Revenues could be used to pay for low-income tax breaks and programs targeting poverty reduction, to ensure food insecurity for low-income families is not exacerbated. Even if some practical challenges remain, the environmental, economic, and public health cases for a carbon tax on food are strong enough that we should at least be talking about it.

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10 thoughts on “Carbon pricing should include food

  1. 50% of all CO2 emissions are coming from the growing (including animals), processing, packaging and shipping of the global food supply thousands and thousands of miles everyday.

    Liked by 2 people

  2. Not to mention that we throw out 40% of all the food we produce. Yet we have starving people all over the world. Seems this needs to be looked at more seriously.

    Liked by 2 people

  3. One challenge that a tax on consumption of an essential like food has is that it is a very regressive tax in terms of who is most burdened. If implemented in a revenue neutral way like BC’s carbon tax, the way the revenue is fed back into the economy needs to be looked at carefully to ensure there is not an undue burden on the poorest citizens, particularly considering that they are amongst the least likely to file a return. Do you pump it into social services or give it back as a rebate? If you want a more progressive way to hit the same incentives in domestic food production, why not tie the tax to the land itself (and what it is zoned for) and not the product? Property taxes targeting wealth rather than consumption of an essential need should be more progressive in practice.

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    • I completely agree, as I say in the post. Feeding the revenues back into the economy so as to not exacerbate poverty or food insecurity is the critical challenge in implementing something like this.

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      • There are many logistical issues that you would need to clear up before this could become reality. You would need a very creative rebating system in order to ensure people don’t get left behind.

        I’m not sure how you can account for people who don’t pay income taxes (e.g., children) or for people who live in remote communities where food prices are high and nutritious food is already scarce.

        Liked by 1 person

  4. pc, you’re definitely right that you would have to cycle the revenue back into the economy in a way that would offset any impact on income or food security for the poor, but there are many ways you could do that which aren’t necessarily that complicated. For example, the simplest thing you could do is send people dividend checks, allocated in a very progressive manner. Another thing you could do is subsidize low-carbon foods (e.g. fruits and vegetables) so that the overall price of food, on average don’t change; high carbon foods get more expensive, low carbon foods get cheaper . Ultimately, by correcting the carbon and health externalities, you are growing the pie, so there has to be a way to redistribute wealth so that everyone is better off.

    Also, couldn’t you make similar arguments about consumption-based carbon taxes on energy (like the B.C. one)? Raising energy prices has the potential to impact those at the bottom, and yet places like B.C. have figured out how to do this without having any negative impact whatsoever on the economy or exacerbating poverty.

    My larger point is that a carbon tax on food makes enough sense in the aggregate that we should be seriously considering how it can be implemented. I’m quite confident that a feasible path exists.

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  5. Pingback: Matt’s shadow platform: Think big. Drop the hyper-partisan BS. | The Tête-à-Tête

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