Luxury-focused carbon taxation improves fairness of climate policy

Equitable climate policies are required for a just and rapid energy transition. A widely discussed climate policy instrument is carbon taxes. Previous studies of the distributional implications of carbon taxation focused on uniform carbon taxes across sectors. Differentiated tax rates across goods and services received less attention. Here we model an alternative carbon tax design accounting for the distribution of household consumption and carbon footprints across 88 countries covering the global north and south. The policy distinguishes luxury and basic consumption and sets higher carbon prices for luxury. The policy reduces yearly global household emissions by 6% compared with no policy and inequalities are reduced compared with no policy and compared with a uniform carbon tax. By 2050, the policy saves around 100 gigatonnes carbon dioxide equivalents, which is 75% of what is needed for households to remain within a 2° consistent climate pathway.