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SHIFT TAXATION FROM LABOUR TO EMISSIONS

A more effective carbon pricing system will help reduce fossil fuel use. Redistributing its revenues can ease the energy transition for vulnerable households.

SIGN THE OPEN LETTER

AN OPEN LETTER TO THE EU INSTITUTIONS FOR A GLOBAL, FAIR AND SUSTAINABLE CARBON PRICE, INSPIRED BY PEER-REVIEWED RESEARCH AND BY THE WORK OF NOBEL LAUREATES.

Global warming is a global challenge and an environmental and economic emergency. Economists and institutions no longer doubt that carbon pricing, implemented as an Emissions Trading System like the EU ETS, is the most efficient and effective way to cut greenhouse gas emissions. To limit global warming in line with the Paris Agreement, carbon pricing must be expanded globally, with a price of at least $75 per tonne of CO2 by 2030.

Yet some EU governments and parts of the European Parliament still see carbon pricing as an economic risk. Even in Europe, home to the world’s largest carbon market, free CO2 permits are still handed to energy-intensive industries, and billions of euros keep flowing to fossil fuels in the name of social welfare and competitiveness.

A robust carbon price would bring a significant and lasting fall in emissions, but also higher energy and material prices, which hit low-income households hardest. That is why its revenues must go back to them: shifting taxation from labour to the consumption of non-renewable resources makes climate action both effective and fair.

TO MAKE POLLUTERS PAY AND PROTECT THOSE WHO ARE MOST EXPOSED, SIGN THE OPEN LETTER TODAY.

SIGN THE OPEN LETTER

Leave your details to sign the open letter to the European Parliament and the Council. We’ll keep you informed and invite you to take part in future campaign actions.

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    What we ask

    1. RAISE THE AMBITION OF THE FIT FOR 55 PACKAGE
      Strengthen the key elements of the Fit for 55 package to cut EU greenhouse gas emissions by 65%, not just 55%, compared to 1990 levels, and adopt the provisions needed to reach carbon neutrality (net zero) by 2045.

    2. STRENGTHEN THE EU CARBON PRICE
      Reinforce the EU Emissions Trading System (ETS) with a faster phase-out of free allowances by 2030, and allow an uncapped carbon price, including in the heating and transport sectors, wherever it is needed to meet emission reduction goals.

    3. SHIFT TAXATION FROM LABOUR TO EMISSIONS
      Redistribute a substantial part of carbon pricing revenues to low-income households, shifting taxation from labour to the consumption of non-renewable resources and strengthening the EU’s Social Climate Fund.

    4. BUILD A GLOBAL CLIMATE CLUB
      Promote worldwide a “Climate Club” in which all participating countries adopt a robust carbon price and redistribute its revenues to low-income households. The Club would set up a Global Incentive Fund, financed by every country whose current or historical per-capita CO2 emissions exceed the global average, to support sustainable initiatives in low-GDP countries.
    READ THE FULL TEXT OF THE OPEN LETTER
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    “Global warming is a global challenge and an environmental and economic emergency.”

    Open letter
    to the European Parliament and the Council

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    THE IMPORTANCE OF A FAIR CARBON PRICE

    Putting a price on carbon makes polluters pay for the damage they cause and pushes the whole economy towards clean energy. But a price alone is not enough: without redistribution, higher energy and material costs would weigh most on low-income households and erode public support for climate action.

    Returning a substantial share of carbon revenues to those households, and lowering the tax burden on work, turns climate policy into social policy. It is how the transition becomes both effective and fair.

    Climate change does not stop at borders. That is why the letter calls for a global “Climate Club”, building on the work of Nobel laureate William Nordhaus, and for a Global Incentive Fund financed by the highest per-capita emitters to support sustainable projects in low-income countries. According to recent research, a fair green transition would also require wealthy, high-emitting nations to phase out oil and gas production by 2034, while the poorest nations would have until 2050.

    A single smokestack releasing a long plume of smoke into a clear blue sky

    THE OPEN LETTER IS SUPPORTED BY

    •⁠ ⁠Clima3T, University of Trento

    •⁠ ⁠Equal Right

    •⁠ ⁠Cap and Share Alliance

    SHIFTING TAXATION FROM LABOUR TO EMISSIONS
    Open letter to the EU institutions

    Open letter to the EU for a global and sustainable carbon pricing inspired by peer reviewed  manuscripts and by the research of nobel prizes.  

    Global warming is a global challenge and an environmental and economic emergency (1,2). Economists and  institutions no longer doubt that carbon pricing, implemented as an Emissions Trading System, like the EU ETS, is the most efficient and effective way to reduce GHG emissions. Academics and experts have found  that, to limit global warming in line with the Paris Agreement, carbon pricing must be expanded globally, with a price of at least $75 by 2030 (3). Moreover, according to a recent study, a fair green transition would require wealthy, high-emitting nations to phase out all oil and gas production by 2034 while the poorest nations would have until 2050 to end production (4).

    Yet, some EU governments and parts of the European Parliament mistakenly see carbon pricing as an economic risk. Even in Europe, where the world’s largest carbon pricing system (the EU ETS) is in force, free CO2 permits are still provided to energy-intensive industries, even for sectors for which evidence of carbon-leakage risks is weak. Some governments continue to provide billions of euros of subsidies to the fossil-fuels economy in the name of social welfare and economic competitiveness (5,6).

    A robust carbon pricing system, necessary to fight the climate emergency, would lead to a significant and  persistent fall in GHG emissions, but also to an increase in energy and materials prices. Related costs would disproportionately fall on low-income households requiring counterbalancing measures (7).

    For this reason, redistributing carbon pricing revenues to such households is necessary to reduce the economic costs of carbon pricing and to strengthen public support for an effective carbon pricing initiative (8,9). This approach is vital for any carbon pricing system and should be a main pillar of a future carbon pricing agreement (Climate Club) with global reach, to be urgently promoted world-wide. With this initiative, we ask to the European Parliament and the Council (10):

    • To strengthen the major elements of the Fit for 55 Package (11), to achieve a reduction of  EU greenhouse emissions by 65% and not just 55% on 1990 levels and adopt provisions to achieve the carbon neutrality (Net Zero) by 2045.
    • To strengthen the EU carbon pricing system (ETS) by setting a faster phase-out of free allowances (2030) and allowing an uncapped carbon price also of heating or transport sectors as necessary to achieve emissions reduction goals.
    • To redistribute a substantial part of carbon pricing revenues to low-income households, thereby shifting taxation from labour to the consumption of non-renewable resources, thus strengthening the EU’s social climate fund. 
    • To globally promote the establishment of a “Climate Club” (12) where all participant countries adopt robust carbon pricing system, with due consideration of redistributing carbon pricing revenues to low-income households.

    The Climate Club is expected to establish a Global Incentive Fund (13), to which every country with current or historical per-capita CO2 emissions above the global average contributes with a proportional fee. The fund will be used to support sustainable initiatives in low-GDP countries.

     

    Notes and references 

    1 Council of the European Union – Climate change costs lives and money, 2020.

    2 European Environment Agency, Economic losses from climate-related extremes in Europe. 2023.

    3 S. Black, I. Parry, More Countries Are Pricing Carbon, but Emissions Are Still Too Cheap, International Monetary Fund, 2022.

    4 D. Calverley, K. Anderson, Phaseout Pathways for Fossil Fuel Production within Paris-compliant carbon budgets, 2022.

    5 European Court of auditors, “Energy taxation, carbon pricing and energy subsidies”, 2022.

    6 C. Maarfield et al., Fossil Fuel Subsidies in the EU, CAN Europe, 2023.

    7 ISPI. From the Green Deal to REPowerEU: The Green Transition in Europe and Beyond, 2022.

    8 Carattini S, Carvalho M, Fankhauser S. Overcoming public resistance to carbon taxes. Wiley Interdiscip Rev Clim Change. 2018.

    9 Fiscal and Distributional Analysis of the Federal Carbon Pricing System, Ottawa, Canada, 2019.

    10 Reference treaty articles (TFEU): Article 191, 192, 193 of “The treaty on European union and the treaty on the functioning of the  European Union”.

    11 European Commission, “Fit for 55”: delivering the EU’s 2030 Climate Target on the way to climate neutrality, 2021, COM(2021) 550.

    12 William Nordhaus, Climate Clubs: Overcoming Free-riding in International Climate Policy, American Economic Review, 105(4):  1339–1370, 2015.

    13 R. Rajan, A Global Incentive Scheme to reduce carbon emissions, University of Chicago Booth School, 2022.

    The organizations supporting the petition are:

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