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.