A Carbon Wealth Tax Creates Accountability
The author is a Sophomore at Laurel School in Ohio.
A report by Oxfam in 2020 found that “[t]he richest 1% (c.63 million people) alone were responsible for 15% of cumulative emissions, and 9% of the carbon budget – twice as much as the poorest half of the world’s population.” Low-income populations, who face the harshest effects of climate change, are making the lowest impact. In fact, a study by USC researchers Shengjie Liu and Emily Smith Greenaway reported that “on average, non-White (especially Black and Hispanic) and low-income Americans are exposed disproportionately to larger [daily temperature variation]” which can be a key indicator of climate change impacts. The ultra-wealthy contribute the most to the climate crisis, yet can go about their daily lives, often sheltered from the environmental destruction that they are causing.
Something must be done, but what can actually hold those most responsible for the problem accountable? The answer is evident: a carbon wealth tax, which has the potential to “correct wealth distribution and help finance (and accelerate) the green transition” as explained in a paper by Willi Semmler, a professor in the economics department at the New School and Jose Pedro Bastos Neves, a PhD student at the New School. Wealth taxes have already gained traction. In fact, during the Democratic Party presidential primary in 2020, both Senator Elizabeth Warren and Senator Bernie Sanders advocated for different versions of the wealth tax. While there are many differing wealth tax proposals, the Tax Foundation crystallizes that “[w]ealth taxes work by applying a tax rate to an individual’s net wealth, usually above a certain threshold.” Specifically, carbon wealth taxes “would be levied on carbon-intensive (brown) wealth rather than carbon-intensive goods,” as crystallized by Semmler and Neves. Carbon wealth taxes could be a possible solution to two of the biggest problems facing our society today: wealth inequality and climate change.
Photo courtesy of pixabay.com
How would a carbon wealth tax help the climate?
Carbon wealth taxes disincentivize holding assets such as “oil fields, mining, steel production, factories producing internal combustion engines, and other CO2-emitting industries” by placing a tax on the income made from these holdings, as Willi Semmler and Jose Pedro Bastos Neves explain. However, a paper by Vanessa Fetter, who is now an Attorney Advisor for the US Environmental Protection Agency, proposes taxing “wealth, which in this case is shareholders’ value of fossil fuel companies’ shares” because “[n]et wealth is more heavily concentrated and more unequally distributed than income.” Whether the tax be on income or wealth, “the hope is that asset owners will shift from ‘brown’ to ‘green’ assets over time to optimize their tax burden,” as Semmler and Bastos Nevo detail.
Minimizing assets in industries that produce massive emissions could drastically reduce climate change and its harmful effects. Although there are no exact estimates of this impact, it would certainly be substantial considering that the carbon pricing proposal detailed in the Energy Innovation and Carbon Dividend Act could potentially “lead to economy-wide net GHG emissions reductions of 32–33 percent by 2025 and 36–38 percent by 2030” as reported by the Center on Global Energy Policy at Columbia.
Additionally, carbon wealth taxes could generate significant revenue for climate initiatives or social services. Wealth taxes usually apply to taxpayers whose wealth exceeds a certain wealth threshold. For example, in her paper “A Global Climate Wealth Tax to Fund a Worldwide, Just Transition,” Vanessa Fetter proposes that “[t]axpayers with a net wealth above $10 million would be subject to a global climate wealth tax.” The “targeting of specific, wealthy taxpayers holding investments in fossil fuel companies” could help raise substantial revenue. For example, 2020 presidential candidate Elizabeth Warren’s wealth tax was predicted to “raise roughly $2.1 trillion over fiscal years 2022-2031” if implemented according to a brief from the University of Pennyslvania Wharton's Budget Model. The revenue could go to solar panels, clean energy incentives, and more, helping reduce the deadly harms of fossil fuels. Semmler and Neves further that the revenue “could be transferred to poorer countries to combat the effects of climate risks and finance and energy transition.”
Why are there not many wealth taxes in place today?
If wealth taxes are mutually beneficial to our society and planet, then why aren’t they common? Well, wealth taxes have often not generated as much revenue as predicted. A report by Cristina Enache from the Tax Foundation explains that, in previous implementations, “[w]ealth taxes have generally accounted for a very small share of tax revenues. In 2022, tax revenues from individual net wealth taxes ranged from 0.19 percent of GDP in Spain to 1.19 percent of GDP in Switzerland. As a share of total tax revenues, they ranged from 0.51 percent in Spain to 4.35 percent in Switzerland.”
There are many reasons for this, including tax evasion and capital flight. In fact, Enache continues that “[o]ne of the reasons Sweden abolished its wealth tax was because capital and high-net-worth individuals fled the country.” Wealth taxes may encourage affluent individuals to leave a country to avoid the tax. Furthermore, even when wealthy people stay in the country, they often try to evade the tax. There are multiple strategies people employ to avoid taxes, including maximizing their tax-exempt assets and “reducing their realized taxable income and increasing their long-term capital gains realizations,” according to a paper by Mariona Mas-Montserrat, a PhD candidate at the University of Barcelona School of Economics, and others.
On carbon taxes specifically, Roumeen Islam, an economic advisor for the Infrastructure Global Practice, corroborates that the shift from brown to green resources that a carbon wealth tax fuels, inevitably involves restructuring the economy. “[R]estructuring takes time as people, capital and other resources do not flow seamlessly into new sectors. During the transition, resources can be unemployed for long periods, and the larger the immediate price increase, the larger the potential disruption in the short term.”
Carbon wealth taxes could be a powerful force for reducing inequality in America, and potentially beyond, while also targeting key environmental issues. However, evasion and capital flight could pose potential barriers to the groundbreaking effects of a carbon wealth tax. Whether or not a carbon wealth tax is the best solution, efforts must be made to combat the drastic inequalities and impacts of climate change across the globe.
A Carbon Wealth Tax Creates Accountability © 2025 by Youth Environmental Press Team is licensed under CC BY-NC-ND 4.0. To view a copy of this license, visit https://creativecommons.org/licenses/by-nc-nd/4.0/
