In pursuit of progressive and effective climate policies: Comparing an air travel carbon tax and a frequent flyer levy

Abstract

This paper investigates the trade-offs between progressivity and effectiveness for a carbon tax versus an ‘excessive consumption’ levy. To do this, we compare the distribution of consumer welfare impacts and environmental effectiveness of an air travel carbon tax and a frequent flyer levy. Results show that both policies have the potential to achieve substantial carbon mitigation with minimal impacts on consumer welfare. Nevertheless, compared with a carbon tax, a frequent flyer levy is more progressive and effective at reducing emissions – thus, there is no trade-off between progressivity and effectiveness by using an excessive consumption levy to mitigate air travel emissions. Furthermore, considering the pronounced growth in demand projected for air travel over the next 30 years, results show the frequent flyer levy will remain more progressive and effective over time. Although further research is needed to assess the trade-offs on the supply-side (e.g., protection of regular customers, dynamic efficiency) and related to implementation (e.g., data privacy, the role for revenue recycling), such an excessive consumption levy has the potential to be an equitable, effective and politically acceptable environmental policy for curbing carbon dioxide emissions. This is relevant not only for air travel but for other forms of consumption in which the affluent are responsible for a large share of demand and associated carbon emissions.