Climate protection can create inconveniences and, in some cases, may even require self-abnegation. Policymakers are therefore proceeding cautiously. Emission allowances and carbon taxes are supposed to decarbonize the economy – ideally without raising consumers’ ire. Higher energy costs aren’t a problem for the well-off. But people on low incomes feel the impact of higher gasoline and home heating prices immediately. Climate protection is, in other words, a social issue as well.
France experienced this in 2018 when it tried to raise fuel taxes. Disaffected rural and peri-urban citizens – who rely on their cars far more than city dwellers – have responded with (sometimes violent) protests against the fuel tax and, more generally, in favor of social justice. Their symbol is the high-visibility, neon-yellow safety vest that French law requires drivers to have in their vehicle in case of an emergency situation. Although the yellow vests movement (“movement des jilets jaunes”) never really spread to neighboring countries, policymakers across Europe took note: energy prices have the potential to become a hot-button issue.
Progressive policies, regressive taxes
In 2000 Germany introduced a renewables surcharge of 6.75 cents per kilowatt-hour to subsidize renewables growth. It’s worked: renewables’ share of the country’s electricity supply has increased from 6% in 2000 to nearly 40% today. The surcharge – which costs a four-person household about €200 per year – may be environmentally progressive. From a tax perspective, however, it’s highly regressive: it affects poor people far more than rich people. That won’t change much when it declines to 6.5 cents per kilowatt-hour in 2021.
Germany is reducing the renewables surcharge because it’s introducing a carbon tax on gasoline, diesel, heating oil, and natural gas equal to about €25 per metric ton of the carbon emissions these fuels cause. The tax will gradually increase to €50 per metric ton in 2025 and €180 in 2030. Higher costs are designed to encourage companies and consumers to conserve energy or switch to green sources. Researchers at the Walter Eucken Institute, a think tank in Freiburg in southwest Germany, have pointed out that a carbon tax is a tax on (almost) everything and therefore places an unfair burden on low-income households. The cost of home heating, for example, accounts for a bigger proportion of a poor families’ income (to make matters worse, many such families live in inadequately insulated, low-efficiency buildings and therefore have a relatively higher heating costs).
Tax, then refund
Some German policymakers advocate redressing this imbalance by refunding to citizens the revenue generated by the carbon tax. This would especially benefit people with exemplarily green lifestyles: they’d pay less carbon tax but still receive the refund. Also, from 2021 onward the tax deduction for commuters in Germany who travel more than 20 kilometers one way to work will increase from 30 to 35 cents per kilometer for each kilometer after the 20th. For greater social justice, Federal Environment Minister Svenja Schulze (SPD) proposes giving low-income citizens an additional refund check.
Achieving big objectives with small steps
Despite energy taxes’ obvious social disparities, the financial burden of climate protection isn’t borne predominantly by the poor. As Claudia Kemfert of the German Institute for Economic Research in Berlin points out, “it’s high-income households with three cars that have the biggest carbon footprint” and therefore will pay the most tax. For his part, University of Munich sociologist Armin Nassehi believes that the carbon tax will have almost no effect on the behavior of low-income consumers because it will make an already bad situation only incrementally worse.
The same is true, albeit for different reasons, for frequent-flying, SUV-driving rich people. Their demand for the paraphernalia of a high-emission lifestyle is inelastic and therefore will be unaffected by a slight increase in cost. For this reason, Nassehi argues that Germany’s carbon tax should be just the first of many small steps toward achieving dramatically lower carbon emissions. He criticizes, in this regard, the federal government for often being overly cautious: “Steps can be small without being petty.”