Carbon tax could eradicate extreme poverty, economists say

Proceeds from tax would be paid out as dividend, incomes of most people overall

Driving a petrol car would become more expensive under the proposals, but most people would be better off overall thanks to the dividend (Getty)

A properly "tuned" carbon tax could eradicate extreme poverty worldwide, lifting more than a billion people above the global poverty line, a report has found.

Economists at the think-tank Autonomy say the charge on emissions could be used to pay a dividend to people around the world by taxing polluting activities while helping stop climate change.

Under the grand proposals, 3.8 billion people worldwide would see their income increase by at least 10 per cent, bringing around a billion people over the conventional poverty lines of $3.2 and $5.5 a day.

At a UK level the tax and divided scheme would benefit 70 per cent of the population, with the top 20 per cent effective contributors to the scheme.

People would be charged more activities like burning fossil fuels or buying polluting products, but would also be given a regular income in the form of the dividend from the tax.

Under the proposals, the costs of driving 1000km with an average petrol car would increase by £19, while the costs of a high-end smartphone would increase by around £8.70.

But for most people these costs would be offset by the dividend payment they got out of the scheme, with only those biggest polluters paying more than they get out.

Economists have long discussed a carbon tax as a means of getting people to change their behaviour, but the new analysis –based on World Bank Data – shows how it could also redistribute wealth if properly constructed.

It is not clear how such a scheme could be introduced worldwide at the same time, but the authors of the report say time is running out to stop runaway climate change and that leaders need to get their act together.

It is hoped that the scheme encourage people to make less polluting choices while maintaining their livelihoods, a problem with some approaches to climate action.

Some UK right-wingers like Nigel Farage are campaigning against reaching net zero carbon, arguing that it will impose too many costs.

Scientists say reaching net zero greenhouse gas emissions by 2050 at the latest is a requirement to avert catastrophic climate change in the coming decades.

The UK’s Committee on Climate Change has said investment in green energy the best way to bring down bills and that new fossil fuel drilling will not help.

Philipp Frey, co-author of the paper, said the dividend pay-out component was "crucial" so that the tax did not hit the poorest.

“A carbon tax and dividend scheme would constitute a massive economic incentive towards greening the economy, driving out the consumption of carbon-intensive goods while maintaining livelihoods", he said.

“This report makes a compelling case for governments to look at taxing the rich to help save the planet from climate change and tackle poverty rather than making ordinary people pay for the climate crisis.

“We don’t have long left to tackle climate change, so leaders across the world need to urgently look at proposals that tax carbon at consumption. The dividend component is crucial in order to maintain and improve livelihoods whilst we transition away from a carbon-centered society.”