José Maria Gil Roig (Center for Agro-Food Economics and Development, CREDA, Spain): “Is fiscal policy effective to incentivize more sustainable food consumption?"

Abstract:
The European Commission has proposed a roadmap to make the EU carbon-neutral by 2050. This is only possible if all sectors reduce emission and/or buy credits for the excess emission from the EU emission trading market to become neutral. We propose that Spain can achieve a carbon-neutral food consumption from two perspectives: 1) reducing household consumption of carbon-intensive foods through education and carbon labelling, and 2) allowing consumers to pay for the excess emission by buying emission credits from the EU trading system that could be achieved through a carbon tax scheme.

Previous literature suggests that demand-side measures provide an efficient avenue to effectively reduce greenhouse gas emissions and improve health. Therefore, the goal of the present study is to estimate the impact of a carbon-neutral consumption tax and assess its implication for consumer welfare, energy and nutrient purchases, and body weights.

The analyses used home scan data on food purchases made by Spanish consumers in 2016 and 2017 collected by Kantar Worldpanel. Two alternative tax policy scenarios were considered, which are uncompensated and compensated or revenue-neutral scenarios. The methodological framework has been based on expenditure as well as own and cross-price elasticities calculated from estimating an incomplete EASI food demand system.

Our results suggest that each Spanish consumer will pay 158.91 Euros annually to become carbon neutral in food consumption. The uncompensated carbon-neutral policy is more effective in reducing the consumption of high carbon footprint foods than the compensated or revenue-neutral tax policy. However, the average Spanish consumer saves between 0.69 – 2.52 per cent of her initial expenditure on foods in the compensated tax scenario but loses 0.42 - 3.12 per cent of her initial expenditure in the uncompensated tax scenario. In terms of emission, consumers will reduce their emission by 3.73 – 3.87 per cent in the compensated tax scenario and 6.98 - 7.02 per cent in the uncompensated case. Annual land use allocated to agricultural production could reduce by 4.75 per cent – 8.19 per cent. The average person could lose 3.62 kg (first year) – 8.15 kg (tenth year) under the uncompensated policy and between 0.02 kg (first year) to 0.74 kg (tenth year) under the compensated policy scheme. Finally, we find that the uncompensated policy is most effective on couples with kids but least effective on young independent adults. Also, the uncompensated policy is most effective on residents in the Barcelona Metropolitan Area but least effective on residents in the North-west of Spain. This seems to suggest that government policies do not have the same impact across different regions in Spain and life stages in Spain.