Carbon footprint - a luxury good : implications for a Norwegian tax proposal

Consumption-based emissions from international trade are substantial, but are not reported to the UNFCCC. In this master thesis, we have analysed the relationship between individual expenditure and the consumption-based carbon footprint in 2012, using a two-region model to account for trade. Total average per capita emissions is 10 tonnes CO2, and indirect imported emissions accounts for 43% of the total carbon footprint. The carbon elasticity in Norway is likely above one, as our results indicate that it is 1.19. More specifically 1.37 for indirect imported emissions, 1.09 for indirect domestic emissions and 1.1 for direct emissions. In other words, the relationship between consumption-based emissions and expenditure are increasing at the margin. Therefore, carbon emission is a luxury good, and a tax would be progressive. The cause appears to be the cheap, clean electricity in Norway. Reviewing the literature to assess unilateral policy options, we find a broad consensus in favor of a carbon tax. However, as the estimates for the current social cost of carbon ranges from 12 USD/tonne CO2 to 900, setting a tax level is dicult. Implementing a carbon tax unilaterally also demands a border carbon adjustment (BCA) to protect the exposed industry, and avoid carbon leakage. The empirical results indicate that this is not particularly e↵ective. Levying the tax upstream would be preferred, but is impossible with most imported goods. Generalized emission intensities for product categories can be utilized, but will create adverse incentives and perhaps increase global emissions. More accurate estimates would help, but increase costs and complexity. Challenges aside, Norway are all but dependent on the e↵orts of other, larger nations, if we are to avoid potential damages to our economy caused by climate change. Setting an example for others to follow may be the only way to achieve this, and we should therefore start to pursue unilateral e↵orts in the product categories that yields the most reductions.nhhma