Climate tax on food could cut German greenhouse gas emissions by more than 20%, reveals study

The German agricultural sector could reduce its greenhouse gas (GHG) emissions by 22.5%, while generating over €8.2 billion (US$8.4 billion) annually by putting a tax on high-emitting foods like meat and dairy, according to new research.

The Potsdam Institute for Climate Impact Research (PIK) study suggests that raising prices on GHG-intensive foods could help Germany meet its agricultural climate targets while reducing 15 million metric tons of emissions each year.

The paper proposes a fee of around €200 (US$206) per metric ton of GHG emissions for products like meat and dairy, while prices for more sustainable products would be less. PIK suggests yogurt and milk would increase by about 25 cents per kg, while beef prices could rise by over €4 euros (US$4.12) per kg.

PIK’s model assumes that people would buy, on average, less carbon-intensive products, such as vegetables, “encouraging more sustainable consumption.” It goes on to suggest that if these funds were redistributed to households through a lump-sum compensation scheme, it would ease the financial burden on households, especially those with lower incomes and encourage sustainable consumption. 

“Our paper shows that with a simple revenue recycling program, as in the Swiss case, it is possible to alleviate the poorest households substantially and at the same time placing only a very moderate burden on the better-off,” Max Franks, one of the authors and scientist at PIK, tells Food Ingredients First. 

Reducing annual emissions

Agriculture accounts for 8% of all GHG emissions in Germany. In 2019 the government set itself the goal of reducing annual emissions from 62 million metric tons to 56 metric tons by 2030.

The report’s authors use a demand model that provides a “detailed and representative” picture of how German households respond to price changes. The researchers assessed the effects of GHG emission pricing on consumption and associated emissions.

Although the report doesn’t include a detailed representation of producers and how they might respond, Franks expects the agricultural sector would adapt if the model were introduced. 

“In our simulation, the assumption is that the supply side — farmers, producers, processors —  react to the drop in demand for CO2-intensive food and shift production to less CO2-intensive products,” he explains. 

According to the study, in addition to reducing emissions through food production, there is an increasing opportunity to remove GHG from the atmosphere.

“Governments should offer new business models to farmers through regulation that incentivizes carbon dioxide removal. Different ways of doing that are already being discussed at the EU level,” adds Franks. 

The report does not factor in meat alternatives as a tool for decarbonizing diets, which could also play an important role in emission reduction. PIK says its proposed model would require a constructive dialogue with farmers and producers to allay distributional concerns. 

Last year, Denmark became the first country in Europe to implement a carbon tax on agriculture in a landmark agreement. Franks stresses any EU country doing something similar must coordinate climate policy with the EU’s Common Agricultural Policy to ensure alignment.