A tax on food to protect the environment
What we eat has a remarkably large ecological footprint. In their work to define policy-related solutions to climate problems, researchers in the CERES project have now studied the positive environmental impacts of various kinds of food taxes. Their results suggest that charging full VAT on meat products could represent an initial, relatively straightforward instrument.
The current food system has a detrimental impact on the environment. Problems include high land and water usage as well as biodiversity loss, but also the fact that agricultural practices release massive quantities of nitrogen and phosphates into the soil and waterways. Meanwhile, roughly a quarter of the greenhouse gas emissions caused by private households goes back to what is served at mealtime.
A research team in CERES—a WSS-funded project at the Potsdam Institute for Climate Impact Research (PIK)—investigated how food taxes could reduce the ecological footprint of the food sector. In a paper (*) recently published in Nature Food, the researchers compared two possible approaches: a pragmatic tax instrument that could be implemented quickly and a more differentiated environmental levy that would necessitate more complex policy measures.
Charging full VAT on meat
The first approach involves removing the tax break on meat, a food group with a particularly detrimental impact on the environment. At present, twenty-two of the twenty-seven EU countries as well as Switzerland apply a reduced VAT to meat products. In Germany, for instance, the rate is seven instead of nineteen percent, and levying the full tax would increase the price of meat sold in German stores by twelve percentage points.
Using representative surveys on expenditures of private households as a basis, the researchers estimated how households in all twenty-seven EU countries would react to higher meat prices and how these reactions would affect ecosystems and the climate. They also calculated how much the tax increase would cost households. “In our study, we assume that additional tax income from the higher VAT could be redistributed in the form of per capita payments, for example” says Matthias Kalkuhl, head of one of the four CERES work packages and professor of Economic Growth, Climate Change and Development at the University of Potsdam.
Model calculations revealed that the VAT adjustment would result in EU citizens eating an average of eight to eleven percent less meat. Depending on the climate-related impact—greenhouse gas emissions, water use or loss of biodiversity, for example—the environmental damage cause by food consumption would lower by 3.5 to 5.7 percent. According to the study, households would on average spend an additional one hundred and nine euros per year to purchase meat. If, however, every household was given an annual reimbursement of eighty-three euros, the net cost would fall to twenty-six euros per year.
Carbon tax on food
From an economic point of view, the researchers’ second scenario would be preferable: an environmental tax on all foodstuffs levied according to the amount of greenhouse gas emitted during production. “To ensure comparability between the instruments, we adjusted the tax so that greenhouse gas emissions would be reduced by the same amount as through the removal of VAT reductions on meat,” says Charlotte Plinke, PhD student in the CERES project and lead author of the study.
This would correspond to a price of some fifty-two euros per metric ton of CO2 equivalent, which is roughly the current CO2 price in Germany for fuel and heating oil (between fifty-five and sixty-five euros per metric ton of CO2 equivalent). Regarding environmental impacts such as land and water usage, greenhouse gas pricing would have a slightly greater effect than increasing VAT on meat. And with a refund, it would be even cheaper for consumers: the researchers calculated a net annual average cost of twelve euros per household.
Establishing the “polluter pays” principle
Matthias Kalkuhl says a greenhouse gas tax also has additional advantages over an increase in VAT on meat. “The instrument is more nuanced, and it encompasses the high environmental costs of other food products—milk and cheese, for example.” The broader tax scheme would also bring about the same effect with a smaller increase in the price of meat. Moreover, the general tax could be increased over time to ensure the desired shift in consumer behaviour, whereas increasing VAT on meat beyond the standard rate would be almost impossible to implement.
In their paper, the researchers conclude that removing the tax break on meat could be implemented quickly, as the measure makes use of an existing financial instrument. It could serve as an initial step that could later be supplemented by a more comprehensive and differentiated tax.
Despite the potential benefits of food taxes, however, the researchers point out that they alone won’t solve our environmental problems. “These measures must be accompanied by other policies,” Kalkuhl says. Nevertheless, the effects of food taxes are significant, particularly given the low costs carried by consumers. And, as Charlotte Plinke says, it’s ultimately about price transparency. “The actual price of food should reflect the social and environmental costs of production.”
Difficult implementation
Unlike in the energy sector, such pricing instruments are currently rare in the food sector. Kalkuhl suggests this may be because accurately identifying the emission sources of food production is complex and implementing the required policy measures anything but straightforward. In Europe, there are millions of farms of various sizes that hold different animal stocks and cause different levels of emissions. In addition, negative consequences of agriculture practices such as soil or groundwater contamination often only become apparent years later.
Both researchers concede that the likelihood of introducing food taxes is relatively low in the current political climate. However, Kalkuhl believes the idea would be considered if a fundamental debate on VAT were to take place in the future, or if the discussion shifted to the health costs of meat consumption. “In such a scenario, the knowledge generated in our study about the potential of these measures would prove very useful.”
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