One intriguing idea that we’d like to open to discussion is the implementation of a globally uniform tax on carbon emissions, with the tax proceeds being shared among everyone on the planet.
At first glance, this idea seems both equitable and efficient – internalising the externalities of carbon emissions while leveraging the market's invisible hand to drive sustainable practices. Moreover, the principle that the atmosphere is a shared resource, to which no individual has more claim than another, underscores the fairness of distributing tax revenues equally.
Equitable distribution
Dr Nicolaus Tideman, in his paper "Global Sharing of the Proceeds of Global Carbon Tax," outlines the implications of a single global carbon tax and the resulting financial flows between nations. His work highlights how such a tax could address global emissions by ensuring that the costs of pollution are borne by those responsible, with revenues used to fund renewable energy projects and compensate nations particularly hard-hit by climate change.
Inspired by this research, we sought to explore a bit more about how this might be put into action, as well as adding some colour to the results of distributing the carbon tax equally between the populus.
Let us imagine for a minute
By implementing a carbon tax and redistributing the proceeds, we acknowledge that the atmosphere is a shared asset. This approach ensures that those who contribute to pollution bear the costs, while the benefits are equitably shared among all.
At initial thinking, the challenge seems daunting. How would we ever be able to police or enforce such taxation? Well, data suggests it wouldn’t be that complex.
For example, the Climate Accountability Institute's 2022 report, which tracks emissions from the fossil fuel extraction industry, highlights that emissions from just 115 entities account for the vast majority of CO2 emissions. These corporate and state-producing entities such as Aramco, ExxonMobil, Chevron, Shell, Total, and BP are responsible for over 70% of culmulative global CO2 emissions from fossil fuel and cement since 1751.
Some assumptions
To make the math easy to vary, let's assume a carbon tax of $100 per ton. We calculated the total potential tax receipts from these 114 entities, and the result is striking.
This tax would generate enough revenue to pay every person on the planet approximately $1 per day, or $354 per year. This figure, though seemingly modest in wealthier contexts, has profound implications when viewed from a global poverty perspective.
In developed countries, we spend more than $354 per year on our takeaway coffee habit – whereas over 220 million people live on less than that per year.
Impact on Global Poverty
To further assess the potential impact of this additional income, we turned to the World Bank's Poverty and Inequality Platform. The data revealed that:
3 billion people live on $5 a day or less. For these individuals, an additional $1 daily would significantly improve their quality of life.
For nearly 1.2 billion people, this $1 would constitute more than one-third of their current daily income.
This small daily income boost for the world's poorest populations would have transformational results. For instance, in countries like Angola and Nigeria, where a significant portion of the population lives on less than $5 a day (86% and 90% respectively), the introduction of a carbon tax could uplift millions, reducing poverty and improving living standards.
Regional Variations in Carbon Tax Impacts
According to the IMF, a $35 per ton carbon tax could be particularly effective in reducing emissions in heavy coal users such as China, India, and South Africa. The graph below shows their anticipated effects at $25, $50 and $75 tax rates per ton to give us a sense of how much a tax helps in solving atmospheric destruction (intentionally not calling it global warming or climate change).
Broader Economic and Social Benefits
While the direct financial impact on individuals is substantial, the broader economic benefits are equally noteworthy. The injection of additional income into low-income households can stimulate local economies, increase access to education and healthcare, and foster greater social stability. Moreover, the uniform nature of the tax ensures that the costs are borne proportionately by those responsible for the most significant emissions, adhering to the polluter-pays principle.
Conclusion
The concept of a global carbon tax, equitably distributed among the global population, presents a compelling case for addressing both environmental and socio-economic challenges.
We used $100 per ton as a starting point for the carbon tax. However, some studies suggest the Social Cost of Carbon could be over $1,000 per ton. Imagine the transformative impact if the daily dividend was $10.
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