Taxation Factsheet
Background
Taxation is a mandatory contribution to state revenue collected by governments. Taxation is one common way in which states, and organizations, can induce substantial changes in production methods and consumption patterns of animal-source food.
Taxes can be levied on polluters themselves (e.g.: the farms and factories) to offset environmental, health, and social damages they produce, as is the case with Pigouvian taxes. Pigouvian taxes are already in extensive use today to discourage environmental degradation, for example utilising the “polluter pays” principle on factories that emit environmentally harmful substances.
Another way to curb harmful goods is to impose a tax on the consumer side, for the consumption of a product that has socially harmful externalities. These taxes are called “sin taxes” and are in wide use. For example, many countries tax tobacco, alcohol, and sugary drinks due to the health damage they cause. The adoption of taxes on sales seek to affect the demand of certain products, to indirectly affect production levels and methods of animal-source foods.
Because of the potentially powerful impact that taxes have on production and consumption patterns, taxation is a potentially valuable tool to tackle significant negative externalities that livestock production has on the environment, public health, and animal welfare.
Livestock-Derived Greenhouse Gas (GHG) Emissions
Governments have already identified taxation as an effective instrument against climate change. With animal agriculture being a significant source of GHG, taxation could also play a role in accelerating the transition away from industrial farm animal production. The percentage that the livestock industry contributes to global GHG emissions ranges from 14.5 up to 51%, in terms of life cycle analysis. Population growth and dietary changes, particularly in developing countries, are expected to increase GHG emissions from food and agriculture by up to 80% by mid-century. Livestock production is also a key factor in biodiversity loss.
Livestock GHG emissions are particularly concerning, not only because of the amount of gas emitted, but also because of the type of gas. Methane (CH4), the major GHG associated with livestock, is 80 times more potent to warming the atmosphere than carbon dioxide (CO2), and proliferates faster today than at any other time since record keeping began in the 1980s. On the other hand, methane breaks down in the atmosphere after about a decade, making its reduction critical for near future impact in halting the climate crisis. Therefore, GHG emissions related to food production should become a critical component of policies aimed at mitigating climate change and meeting nationally determined contributions (NDCs) under the Paris Agreement.
As most of the agricultural GHG emissions are related to intrinsic characteristics of the agricultural system, they cannot be reduced without substantial changes in agricultural output. Therefore, demand-side policies could be a more attainable option to introduce. This means that levying GHG taxes on the consumption side may be the economically preferable approach, alongside measures to increase the accessibility and affordability of plant-based foods.
Public Health
Beyond the environmental aspects, the negative impact on public health also creates a health cost that can be taxed. The consumption of red and processed meat has been associated with a range of negative health impacts. It was classified by the World Health Organization as carcinogenic to humans and was associated with increased rates of many other health problems, like coronary heart disease, stroke, and type 2 diabetes. A comprehensive study estimated that in 2020 processed and red meat consumption caused 2.4 million deaths, as well as $285 billion in costs related to healthcare (with three-quarters of them stemming from processed meat consumption).
The Rationale of Taxing Animal Products
Despite the aforementioned considerations and their proven negative environmental and social impacts, animal agriculture is taxed to a low degree compared to other industries that create similar or lower levels of externalities, and animal agriculture is heavily subsidized. This, among other reasons, allows for pricing that does not reflect its negative externalities. The lack of an adequate taxation framework results in relieving animal agriculture producers from paying for the deleterious, multi-faceted impacts – a process called “cost externalising” – which, in turn, encourages overproduction.
On the other end of the value chain, the absence of taxes specific to animal agriculture production has the effect of making artificially cheap animal-source products available to consumers. These artificially deflated prices incentivise consumers to buy more animal-source products, which is a form of distortion in consumer demand, overlooking planetary boundaries. Thus, an intervention is essential both to introduce true pricing measures as well as to reduce animal protein consumption in accordance with public health recommendations. Such an intervention may also be implemented as part of the State's duty of care towards its citizens.
Key Considerations
1. Cost Internalization
The price of animal-source food products does not reflect their true costs. For that reason, an adequate taxation measure should have the effect of internalising the environmental, health, and animal welfare costs of a given food product into its production costs and retail price.
a. The “Polluter Pays” Principle
According to the “polluter pays” principle, the one who causes the damage to the environment should bear the cost of preventing, controlling, and rectifying that damage. Taxes are an important means of promoting this principle, and the UN Framework Convention on Climate Change supports countries in promoting GHG mitigation measures in accordance with this UN framework. Because the production of animal-source food is a major driver of GHG emissions, measures taken on the ground of the “polluter pays” principle, such as taxation, should also apply to animal-source food.
b. Carbon Tax
Dozens of countries have already introduced carbon taxes, which impose a tax on companies from diverse sectors for their GHG emissions. Each country imposes a tax on different pricing, applies the tax to different sectors, and includes exemptions that may reduce the effectiveness of the law. Given the proven impact of GHG emissions on global warming and the significant contribution of livestock agriculture on these emissions, carbon tax plans should include the creation of specific taxes to be paid by animal-source food producers, such as farmers and processors.
Such a tax can be imposed by governments by way of an Emissions Trading Scheme. A trading scheme is a method that sets a cap on GHG emissions, which is reduced over time to achieve climate goals. It prices each tonne of GHG emissions and allows emitters to trade “emission units” to make more efficient economic and environmental choices.
One example of a carbon tax plan that includes the animal agriculture sector is the New Zealand’s Emissions Trading Scheme (ETS). The New Zealand ETS will price emissions from livestock and synthetic fertilizers from 2025, following agreements between the government and agricultural sector.
Indonesia has also passed a carbon tax law and an emissions trading scheme to meet its 2021 NDC. The tax will be levied starting in 2025 on any goods or activities that cause environmental externalities, including agricultural production, and will apply to Carbon Dioxide (CO2), Methane (CH4), and Nitrous Oxide (N2O). Additionally, the Danish government will revisit the possibility of introducing a CO2 tax in 2023, in order to meet the goals of a legislative agreement for green transition in the agriculture sector.
c. Valued Added Tax (VAT)
Several jurisdictions have already identified VAT as a potentially powerful lever to internalise the cost of negative externalities into the price of animal-source products.
For example, Spain’s tax policy encourages the consumption of plant-based foods over meat products. While the Spanish standard VAT rate is 21%, a number of goods and services are subject to reduced VAT rates. Vegetables (as well as dairy products) are included in the super-reduced VAT rate of 4%, while the VAT on meat products was raised in 2012 from 8% to 10%. Proposals to raise the VAT on meat products to 21% were rejected by the Spanish government, due to pressure exerted by the national meat industry, the fourth largest industry in Spain.
Also, in Germany several proposals have been made to raise the VAT on animal-source foods, from 7% to 19%, including by Germany’s Federal Environment Agency. In 2019, a similar proposal was raised by German politicians, who also called for using the additional funds raised by the tax increase to support animal welfare.
The Farm to Fork Strategy, which is part of the EU’s Green Deal, addresses the significance of taxation to promote sustainable and healthy choices, as well as applying true market costs to production. The European Commission, the executive branch of the EU, drafted a legislative proposal on VAT rates, which are currently being debated, and could allow Member States to make more targeted use of VAT rates, for instance to incentivise the consumption of organic fruits and vegetables.
2. Promoting a Shift to Healthier, More Sustainable Consumption Patterns
The Scientific Group for the UN Food Systems Summit on Action Track 2 – Shift to Healthy and Sustainable Consumption Patterns – found that taxes can be effective in encouraging behavioural changes. In this UN report, experts indicated that “Taxes and front-of-pack information labels have been used with success to moderate the purchase of unhealthy food, as well as influence reformulation of unhealthy products.” It also stated that although the magnitude of effect ranges, “there is evidence that fiscal measures such as taxes on unhealthy food improve diets.”
For instance, studies have shown that the effects of such taxes on unhealthy products tend to be consistent across a variety of products. For instance, the introduction of taxation on sugar-sweetened beverages reduced consumption levels of such products in Berkeley, California and Mexico. Another comprehensive study from 2018 found that in optimal taxation, processed meat prices would increase by an average of 25% and consumption levels would fall by an average of 16%. The number of deaths attributed to red and processed meat consumption would drop by 9%, and the attributed health costs would drop by 14% worldwide.
An effective impact of taxing unhealthy products can be seen in Denmark’s case, where a saturated fat tax was introduced for 15 months in 2011-2012, covering several meat and dairy products. During this period, there was a 4-6% reduction in saturated fat intake, and vegetable consumption increased. (However, salt consumption increased for most individuals, except younger females.)
3. Ensuring Food Security
Taxing animal-source foods should take into consideration impacts on food security of lower-income countries and low-income segments of society. A comprehensive food policy should thus be applied, directing taxation revenues to make healthy and sustainable plant-based foods more affordable and accessible.
In term of popular support, a recently survey found that 70% of the consumers in Germany, France, and the Netherlands support applying a meat tax which would be used to subsidise fruits and vegetables.3 (Broeks et al.).
A social cost-benefit analysis of meat taxation and a fruit and vegetables subsidy in the Netherlands found that overall, a 15% or 30% price increase in meat could lead to a net benefit for society between €3 100–7 400 million or €4 100 –12 300 million over 30 years, respectively. A 10% fruit and vegetable subsidy could lead to a net benefit to society of €1 800–3 300 million.
An empirical study reviewing the effect of food taxation and subsidies intervention suggests that such taxes and subsidies should be set at a minimum of 10 to 15% to be effective; these measures should be implemented in tandem to improve success.
4. Policy Coherence
It is counterproductive to subsidise environmentally and socially harmful products while taxing them simultaneously. Implementing a coherent taxation policy thus requires addressing the following matters:
a. Taxation of All GHGs
As meat and dairy companies are often responsible for higher levels of CO2-equivalent emissions than large oil companies, taxation should include all GHGs derived from livestock production – carbon dioxide (CO2), methane (CH4),and nitrous oxide (N2O).
b. Encouraging Sustainable Agriculture and Eliminating Harmful Subsidies
An example of measures that encourages sustainable practices in agriculture can be found in EU law. The EU’s agricultural policy, the Common Agricultural Policy (CAP), grants farmers financial support only if they adopt more sustainable practices to promote soil quality, biodiversity, crop diversification, and healthy grassland. Furthermore, animal agriculture producers can have the total amount of their subsidies reduced if they fail to comply with EU farm animal welfare legislation. Taking another step to implement its food policy, the European Commission has decided that it will no longer subsidise promotional campaigns for red and processed meat in 2022, and it will instead promote the consumption of fruits and vegetables, to better align with the objectives of the EU Green Deal and the Farm-to-Fork Strategy.
While these are all important criteria to mitigate the detrimental impacts of subsidies on the environment, public health, and animals, only products that cause positive externalities should be eligible for subsidies.
c. Carbon Border Adjustment
Taxation mechanisms should apply to imported products, in order to prevent the exportation of emissions, and trade distortions for domestic producers.
For instance, the European Commission adopted a proposal for a new Carbon Border Adjustment Mechanism, which will put a carbon price on select imports, so that ambitious climate action in the EU does not lead to “carbon leakage,” whereby emissions are outsourced to non-EU countries.
References
References
Christiane C. Bähr, Greenhouse Gas Taxes on Meat Products: A Legal Perspective, Transnational Environmental Law (2015)
M. J. Broeks, S. Biesbroek, E. Over, P.F. van Gils, I. Toxopeus, M.H. Beukers, and E. Temme, A Social Cost-Benefit Analysis of Meat Taxation and a Fruit and Vegetables Subsidy for a Healthy and Sustainable Food Consumption in the Netherlands, BMC (2020)
H. Eyles, C. Ni Mhurchu, N. Nghiem, T. Blakely, Food Pricing Strategies, Population Diets, and Non-Communicable Disease: A Systematic Review of Simulation Studies, PLOS Medicine (2012)
M. Herrero, M. Hugas, U. Lele, A. Wira, M. Torero (Scientific Group for the UN Food Systems Summit), Consumption Patterns - A paper on Action Track 2, Draft for discussion (2020)
M.M. Lee MM, J. Falbe, D. Schillinger, S. Basu, C.E. McCulloch, K.A. Madsen, Sugar-Sweetened Beverage Consumption 3 Years After the Berkeley, California, Sugar-Sweetened Beverage Tax, American Journal of Public Health (2019)
M. L. Niebylski, K.A. Redburn, T. Duhaney, N. R. Campbell, Healthy Food Subsidies and Unhealthy Food Taxation: A Systematic Review of the Evidence, Nutrition (2015)
J. Poore, T. Nemecek, Reducing Food's Environmental Impacts Through Producers and Consumers. Science (2018)
S. Säll, I.-M. Gren, Effects of an Environmental Tax on Meat and Dairy Consumption in Sweden, Food Policy (2015)
L. M. Sánchez-Romero, et al., Association Between Tax on Sugar Sweetened Beverages and Soft Drink Consumption in Adults in Mexico: Open Cohort Longitudinal Analysis of Health Workers Cohort Study, BMJ (2020)
S. Smed, et al., The Effects of the Danish Saturated Fat Tax on Food And Nutrient Intake and Modelled Health Outcomes: An Econometric and Comparative Risk Assessment Evaluation, European Journal of Clinical Nutrition (2016)
M. Springmann, et al., Mitigation Potential and Global Health Impacts from Emissions Pricing of Food Commodities, Nature Climate Change (2017)
M. Springmann, et al., Health-Motivated Taxes on Red and Processed Meat: A Modelling Study on Optimal Tax Levels and Associated Health Impacts, PLoS ONE (2018)
S. Wirsenius, F. Hedenus, K. Mohlin, Greenhouse Gas Taxes on Animal Food Products: Rationale, Tax Scheme and Climate Mitigation Effects, Climate Change (2010)
Further Readings
The European Commission (EU)’s Farm to Fork Strategy, (2020)
The European Commission (EU)’s Green Taxation and Carbon Border Adjustment Mechanism
Heinrich-Böll-Stiftung, Friends of the Earth Europe, and BUND Meat Atlas 2021, (2021)
True Animal Protein Price Coalition’s EU Policy Proposals
Emma Charlton, “This is Why Denmark, Sweden and Germany are Considering a Meat Tax,” World Economic Forum, 28 August, 2019 (last visited February 14, 2022)
German Federal Environment Agency (Umweltbundesamt) “Environmentally Harmful Subsidies In Germany” (2014)
Flora Southey, Meat Tax Backed by Western Europeans if Revenues Subsidise Fruit And Veg, Food Navigator, 27 January 2021 (last visited February 14, 2022)
What Countries Have A Carbon Tax?, Earth.org (2021).
Law / Policy Name of the text | Topic The topic of the legislation or policy covered by the text | Species The animal, or type of food production, covered by the text | Type of Act Whether the act is a law, regulation, or policy, or another type of text | Status Indicates whether the act is in force or not |
|---|---|---|---|---|
| AgricultureAnimal healthAnimal welfare | All animals | Legislation | In force | |
| Animal healthAnimal welfareAntimicrobial resistance | Farmed animals | Legislative Proposal | Bill proposal | |
28-Hour Law USA | Animal welfare | Farmed animals | Legislation | In force |
| Alternative ProteinsPublic procurement | Farmed animals | Legislative Proposal | Bill proposal | |
| AgricultureAnimal healthAntimicrobial resistance | Farmed animals | Policy | In force | |
| Animal healthAnimal welfareWild-caught fishing | Fish | International Convention | In force | |
| AgricultureAnimal welfareClimate & environmental protection | Farmed animals | Legislative Proposal | In force | |
| Animal welfare | All animals | Constitution | In force | |
| Animal welfareRecognition of sentience | All animals | Legislation | In force | |
| Animal welfare | All animals | Constitution | In force | |
| Recognition of sentience | All animals | Legislation | In force | |
| Animal welfare | All animals | Constitution | In force | |
Article 80 of the Swiss Constitution Switzerland | Animal welfare | All animals | Constitution | In force |
| Animal welfareAquacultureRecognition of sentience | Farmed animalsFish | Legislation | In force | |
| AgricultureAnimal healthAntimicrobial resistance | All animals | Legislation | In force | |
| Recognition of sentience | All animals | Legislation | In force | |
| AgricultureAnimal welfare | Broiler chickens | Legislation | In force | |
| AgricultureAnimal healthAnimal welfareSales Bans | CalvesPigs | Legislation | In force | |
| AgricultureAnimal welfare | Calves | Legislation | In force | |
Canada 2020 NDC Canada | Climate & environmental protection | Farmed animals | Policy | In force |
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