Why carbon taxes should target consumption, not production

Climate change policy is in flux. At the G7 meeting in Taormina, Donald Trump refused to commit to the Paris climate agreement goals and it now looks like he might set to withdraw the US from the agreement. It is also reported that the European steel industry and the Visegrad countries are trying to water down carbon emission goals.

Finding a solution to the emissions issue without either handicapping local industry or embarking on endless subsidies has proven challenging. But it need not be.

The problem lies in the approach of taxing production rather than consumption. Taxing carbon emissions by European or American industry will render some uncompetitive, export jobs to countries that have lower emission standards and end up doing nothing for climate change – since goods will still be produced elsewhere and emissions will continue to rise.

The cleanest solution is to tax carbon consumption rather than production. If every product produced anywhere in the world had to be labelled with its carbon content and was taxed accordingly – higher carbon content would result in a higher carbon tax on the product – then consumers would slowly be steered away from high carbon content goods wherever they were produced.

Industries in countries that had higher environmental standards would be more not less competitive. Including the emissions associated with transportation of goods would further favour domestic production.

This suggestion is not new. Philippe Legrain suggested it in 2014. Why has nothing moved in this direction?

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Radix is the radical centre think tank. We welcome all contributions which promote system change, challenge established notions and re-imagine our societies. The views expressed here are those of the individual contributor and not necessarily shared by Radix.


  1. Alouis HOefsloot says

    CO2 -tax/ levy is very commonsense, but please do not burden the consumer who has no control/ knowledge of product manufacturing. Naturally tax the producers who knows exactly about the energy he is using.

    Possible “unfair” imported products can easily be charged a CO2-import levy, that will encourage competition to look at their own energyy consumption (The higher the CO2-import tax, the easier the foreign competitors will make their own calculations).

    Imagine, linking a domestic a CO2-levy/tax with an CO2 product import tax, would be a very stimulating nudge.

    • Joe Zammit-Lucia says

      Thank you for your comment. You are right that the consumer does not understand production processes. However, it is the consumer who is ultimately responsible for carbon emissions by buying and consuming ‘stuff’. Labeling of carbon content on all products would inform the consumer. It is then up to the consumer to decide whether they would prefer to buy a high carbon product and pay for that or choose lower carbon product. Production processes are important but ultimately it is the consumer who is responsible for consuming and thereby generating carbon emissions. So consumers should indeed be ‘burdened’ by the consequences of their choices. If consumers show a willingness to switch to low carbon content goods and services, production will respond.

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