Criticism of Taylor Swift’s private jet flights inspired Tasnia Hussain. The PhD candidate’s job market paper, Optimal Carbon Policy Under Carbon Inequality, now contributes evidence for tax policies that will reduce carbon emissions and support the population’s long overdue breakup with fossil fuels.
“Two years ago, there was a lot of outrage on Twitter about celebrity private jet use,” Hussain remembered. “People were angry because carbon taxes felt regressive, most people feel them at the gas pump or when heating their homes. Meanwhile, the ultra-rich continue to fly private and sail on massive yachts. That moment made me realize this was the perfect intersection of my interests in inequality and climate.”
Carbon inequality is the idea that wealthy households are responsible for a disproportionate share of emissions and climate change compared to lower income households whose emissions are generated through heating their homes and commuting to work.
“Carbon inequality results not just because of the consumption habits of the wealthy, but also because of how they generate their wealth,” Hussain explained. “For the top 0.1% of the population, their income comes primarily from business ownership, and those businesses are often highly carbon intensive.”
Hussain set out to assess three forms of targeted carbon taxation policy to see which could meet abatement targets while minimizing welfare losses. To do this, she created a general-equilibrium macroeconomic model that incorporated emissions data from sample populations that represented low income to ultra wealthy individuals, the role of entrepreneurship and investment, and energy use in both consumption and production. The model allows her to simulate the economic and distributional effects of different carbon tax policies under different emission reduction targets. She tested three policies; a basic consumption tax that would apply to all households and their emissions from everyday energy use like heating and commuting to work, a luxury consumption tax that targets emissions from luxury and carbon intensive goods like private jets and super yachts, and a production emissions tax that would target businesses.
What she found is that even taxing the toys of the ultra-rich to the point they would no longer exist, would not benefit the climate as much as taxing the businesses the wealthy invest in.
“The yachts and private jets aren’t where most of the rich’s carbon footprint comes from” Hussain said. “It’s their businesses. Targeting their emissions footprints from ownership of firms is much more effective at curbing carbon inequality.”
In contrast, taxing consumption emissions worsens carbon inequality.
“When you tax consumption emissions directly, like through a fuel charge, it hits necessity goods like home heating and commuting,” she said. “Even if you rebate the money back to households, they still feel the pain. It’s regressive. Meanwhile, if you tax production emissions, the wealthy benefit from lower energy prices even when their businesses are taxed.
“Taxing production emissions reduces output and wages, but it also lowers energy prices,” she explained. “That makes heating homes cheaper, which benefits lower-income households. Surprisingly, even the ultra-rich like this policy because it makes their luxury consumption cheaper. It’s a counterintuitive result. Almost all households prefer this policy.”
Hussain’s approach is one that combines methodologies from different branches of economics.
“Tasnia works at the intersection of macroeconomics and environmental economics, using tools from the former to answer questions in the latter,” said Professor Joseph Steinberg, Hussain’s supervisor. “Her findings have important implications for how policymakers should grapple with the trade-off between redistribution and aggregate efficiency in trying to achieve climate goals.”
Hussain’s intersection of interests has come not just through study, but also through teaching. As a teaching assistant, Hussain has supported the master’s level macroeconomics course for the past three years, covering neoclassical growth models and the other standard macroeconomic workhorses.
“One thing I’ve really internalized is that teaching is collaborative,” Hussain said. “Every cohort asks new questions that make me think differently. It reminds me that I still have a lot to learn. Interacting with students deepens my understanding of the material. They help me as much as I help them.”
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