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Minimizing your carbon footprint traditionally involves paying attention to the things you buy, how you commute, and conserving energy at home. A new study published in PLOS Climate shows that mindful consumption is only part of the equation: How much money you make, along with how you make it, matters too. Researchers found that the highest-earning 10% of U.S. households are responsible for around 40% of U.S. carbon emissions. And a large proportion of those emissions are associated with investment income. The findings could inform policy decisions aiming to create more equitable carbon tax systems.

Household Carbon Footprints

Carbon footprints are generally calculated from a consumption standpoint—how individual consumers’ personal choices directly translate to carbon emissions.

There are many reasons why people cannot change their commute, buy local products, or install energy-saving appliances.

“I think there are some limits to that,” said lead author Jared Starr, a sustainability scientist at the University of Massachusetts Amherst. “It assumes that people have an endless amount of choices and knowledge and agency to purchase less carbon-intensive items, and that’s not always the case.” There are many reasons, he said, why people cannot change their commute, buy local products, or install energy-saving appliances.

Instead of focusing on consumption, which can be influenced by a person’s time, money, and location, Starr and his colleagues looked at how making money produces carbon emissions. The researchers calculated the emissions created by earning wages, as well as income made from investments (rent, dividends, interest, and capital gains) and retirement accounts (Social Security or individual retirement accounts).

Using Eora MRIO—a global supply chain database that captures both supplier- and producer-sourced carbon emissions—the group calculated how much each industry category contributed to overall carbon emissions.

Starr explained that, using these data, the researchers figured out how many tons of emissions are needed to produce 1 dollar of income from a specific industry. They then linked this back to household-level U.S. Bureau of Labor Statistics/Census Bureau’s Current Population Survey data (between 1990 and 2019), which show how many dollars of income a person earned from a given industry. Details on investment incomes within a household were collected from the Congressional Budget Office, which breaks down household incomes across different income groups by type (such as wages, investments, and government entitlements such as unemployment or disability payments).

To determine the carbon emissions from investment income, the researchers assumed that households had a diversified investment portfolio that tracked a stock market index, not one that is actively managed, and that the greenhouse gas emissions from these investments were weighted by each industry’s contribution. To account for variability, the team allowed the carbon intensity of a household’s investments to vary by 25% above and below the mean, Starr explained.

“I think just that scale of disparity is quite striking.”

In 2019, the highest-earning 10% of American households were associated with about 40% of total U.S. emissions. Among the top 1%, investments made up 28%–43% of earnings, researchers found, whereas the poorest households were more wage-based and might not have any investment income.

The team found that lower-income groups tended to be employed in sectors associated with fewer greenhouse gases—think retail, teaching, and service industries. Higher-income workers tended to work in sectors associated with higher carbon emissions: financial services companies that underwrite fossil fuel projects and high-end real estate companies, for example. Higher-wage earners have more money left over for investing, too: Passive income from the top 1% of earners is associated with more emissions than their wages. And in our fossil fuel–based economy, Starr pointed out, much of a company’s shareholder value comes with creating emissions.

The emissions inequality between the highest- and lowest-income earners is profound. “Half of the American population—65 million households—are only responsible for about 14% of the emissions [from income],” Starr said. “I think just that scale of disparity is quite striking.”

Chart showing that incomes in wealthy households are responsible for more emissions than poor households
The richest 0.1% of households produce Mount Everest–sized emissions (2,670 tons of CO2 every year). Credit: Jared Starr

Removing the consumption aspect of carbon footprints is a new way of looking at the source of household emissions. “They were able to provide evidence to something that I think we all would anticipate but hasn’t really been shown,” said Regan Patterson, an environmental engineer at the University of California, Los Angeles who was not involved with the study. Their findings were consistent with other studies on greenhouse gas emissions by wealthy households, she added.

Starr noted that the poorest Americans produce less than 2 tons of income-based carbon dioxide (CO2) per year, compared with the top 0.1% of households, which emit 2,670 tons of CO2. Put another way, it takes only about 15 days for a top-earning household to surpass a lifetime of emissions for a lower-earning household.

Rethinking Carbon Taxes

This new look at income-based emissions can foster conversations about carbon taxation policy and reducing industry greenhouse gas emissions, Patterson said.

Currently, carbon taxes are placed on consumer goods, not on passive income from investments. Because low-income earners spend all their income on goods and services, they end up carrying an outsized load of carbon emission mitigation. This is doubly the case if you consider that only 40% of a top earner’s income has any sort of consumer-focused carbon tax applied to it, Starr said, compared with 100% of a low-income earner’s income.

Instead, implementing a carbon tax on investment income could be a way to help level the burden of mitigation. “I think if we put a carbon tax on shareholders that reflected the carbon intensity of the company, it would incentivize shareholders to move money out of highly taxed companies out of their own self-interest,” Starr said. The approach may incentivize corporations to “decarbonize their own operations in order to attract investment.”

—Sarah Derouin (@Sarah_Derouin), Science Writer

Citation: Derouin, S. (2023), How you make money matters when it comes to carbon emissions, Eos, 104, Published on 10 October 2023.
Text © 2023. The authors. CC BY-NC-ND 3.0
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