Keith Ng writes today that the real villain in climate change is not businesses, it’s households! He claims that most growth in emissions and energy consumption is due to household consumption, not businesses. Which is the biggest red herring I’ve seen around climate change in a while.
Here’s a picture that will help: it shows how everything in the economy is actually linked together so considering household and business emissions separately makes no sense.
Now that may be a little simplistic but it’s good enough for our purposes here. Household emissions are measured by looking at the emissions generated in the production of goods that the household consumes. So the emissions come from producers, but the final product is consumed by households. Households provide the demand that causes the creation of goods that generate emissions in their production. So households are really responsible for ALL emissions. All emissions??? Yes, ALL of them.
What about businesses emissions? Well, businesses use goods to enable the production of other goods that households end up consuming. If there were no households buying things then there’d be no businesses making things. So this whole distinction between households’ and businesses’ emissions is really rather confusing, and more of a statistical device than a real division: one would not exist without the other.
Which brings us to the question of what you do about all these emissions from households. If we tax businesses then aren’t households getting off scot free? Absolutely not. Taxing businesses means that goods cost more to produce and, thus, cost more to purchase. Prices rise for household purchases and households decrease their consumption of carbon intensive goods. So we can actually decrease households’ carbon intensiveness by taxing the businesses alone. In fact, it the end it doesn’t really matter who you tax, the reduction in household consumption will be the same.
Not only that, but business income is what pays households’ salaries. So when businesses are taxed, and sell less, and make less money, household incomes go down. And they buy less, which reduces emissions, too.
The point is that you can’t consider household and business emissions as separate problems. They’re interlinked by the flow of goods and income in the economy. Solve one’s carbon externality problem and you solve both.