Taxing the heat out of the U.S. food system

Abstract

This article examines the effectiveness and consequences of using carbon taxes on food purchases to contribute to achieving the U.S. greenhouse gas emissions (GHGEs) reduction target for 2025. Using U.S. Department of Agriculture National Household Food Acquisition and Purchase Survey data and the elasticities derived from the Quadratic Almost Ideal Demand System model, we simulate multiple uncompensated or revenue-neutral carbon tax policy scenarios on different food groups. We apply a carbon tax rate that is proportional to the GHGEs generated throughout each foods lifecycle, computed using Economic Input-Output Life Cycle Assessment. We evaluate the impact of the tax on 1) quantity of GHGEs mitigated and social welfare; 2) nutritional outcomes; 3) distributional implications. Our results show that carbon taxes on food purchases decrease GHGEs from the agricultural and food sectors by 1.9 to 4.8 percent and generate up to $839 billion 2012 dollars social welfare gain per year due to avoided GHGEs-related external costs. However, tradeoffs exist among climate, nutritional and distributional goals. For instance, the most effective policy in reducing GHGEs is regressive and generates the highest loss in consumer surplus per kilogram of emission reduction. Moreover, the quantity of health-promoting nutrients falls significantly in almost all scenarios. Overall, our findings show that the use of carbon taxes alone may not be the most effective way to reduce GHGEs from U.S. food purchases. Additional policies, such as subsidies on less carbon intensive foods, may be needed to encourage consumers of all income level to adopt more sustainable diets without increasing health and social inequalities.