Full value added tax on meat: a first step towards pricing the environmental damages caused by diets

(Press-News.org) A study from the Potsdam Institute for Climate Impact Research (PIK) in Nature Food analyses the ecological “footprint” from diets – and policy options to counteract through price signals. EU-wide, 23 percent of greenhouse gas emissions generated directly and indirectly by private households arise in this sector. When it comes to nitrogen and phosphorus compounds entering the environment, water and land consumption, and threats to biodiversity, the share of diets in the overall impacts is as high as 56 to 71 percent.  Full value added tax on meat can quickly reduce the environmental impacts from diet by 3 to 6 percent depending on category, at an extra annual cost of 26 euros per household on average.

The research team draws on representative surveys of private household expenditures in the 27 EU member states and an established input-output model. This model maps the value chains in which the products purchased by households are produced and quantifies the associated impact on the climate and ecosystems. By empirically analysing consumption patterns, the team can also make statements for policy scenarios. These can allow the state to intervene in the market economy to internalise environmental impacts into product prices and thus incentivise reductions in these impacts.

“From an economic perspective, you should add the product-related environmental costs incurred during production to the price,” explains Charlotte Plinke, PIK researcher and an author of the study. “This would mean that the more CO₂ is emitted, the more expensive it becomes. Implementing such a graduated system for the enormous variety of foodstuffs, however, is very complex and therefore impractical, at least in the short term. That’s why we initially examine a straightforward option that is currently under political consideration: removing tax reductions on meat products.”

Almost all EU countries favour meat consumption

This simple option targets the value added tax (VAT). Food purchased in shops is often subject to a reduced rate, for example, 7 percent instead of 19 percent in Germany. In 2023, 22 of the 27 EU member states also applied a reduced tax rate to meat purchases, the consumption of which accounts for a considerable proportion of food’s environmental footprint, for example, 28 percent of greenhouse gases. 

Taking into account the empirically assessed adjustment reactions of private households and subjecting meat to the standard VAT rate, the model calculation shows that the environmental damage caused by food consumption would be reduced by 3.48 to 5.7 percent, depending on the damage category. The average annual food expenditure per EU-household would increase by 109 euros. This would be offset by additional tax revenues of 83 euros per household, which could in principle be used to finance social compensation, for example through a per capita payment. Annual net costs would thus only amount to 26 euros per household. 

Reform proposal corresponds to a carbon price of 52 euros

In a second step, the research team calculates a scenario in which the state sets an economically consistent price signal, i.e. a differentiated environmental tax on food, based on the greenhouse gas emissions that are associated with each product. The model calculation shows that a general price surcharge of around 52 euros per tonne of CO₂-equivalent would help to avoid the same amount of food-related greenhouse gas emissions as removing the VAT rate reduction on meat. By way of comparison, the carbon price for fuel and heating in Germany, which will be integrated into an EU-wide pricing system in 2028, is currently 55 euros per tonne of CO₂-equivalent.

“Such a comprehensive price signal would reduce the other environmental impacts, beyond greenhouse gases, even a little more than the selective VAT price signal for meat,” explains PIK researcher Michael Sureth, an author of the study. “And above all, the comprehensive price signal could be enhanced over time in such a way that the policy fully addresses the problems, such as the climate and biodiversity crisis. Of course, this must be accompanied by a correspondingly strong social compensation through the reimbursement of revenues. The net costs of such a differentiated environmental tax on food would then fall to 12 euros per household per year. This would be a difficult, long-term project, that’s why our study also describes the option for a quick first step.”

END