Study suggests 'nudging' VAT on meat in Europe to favour plant diets and environment

A new German study has found that slight tax changes could lower the impact of EU food consumption on climate change.

The research by the German Potsdam Institute for Climate Impact Research compared the impact of two policies when it comes to taxation on food: the removal of Value Added Tax (VAT) reductions on meat products and a greenhouse gas emission price or carbon price on all food products.

Meanwhile, in fact, according to Charlotte Plinke, author of the study, 22 of the 27 member states of the EU currently apply reduced tax rates on meat.

Food accounts for nearly a quarter of EU households' greenhouse gas emissions, with meat and animal products responsible for the vast majority of this footprint. While plant-based foods generate less than a fifth of food-related emissions, animal products dominate the environmental toll.

Up to half of the environmental damage from EU food consumption occurs in other regions through global supply chains, particularly affecting water resources in Asia and the Middle East, and biodiversity in South America and Africa.

Shifting European diets towards more plant-based foods has become critical to reducing the environmental impact, according to the study.

Consumption taxes, according to many analysts, are emerging as one of the most effective tools to drive the changes needed to keep the food system sustainable.

Food in European tax systems is treated as a “basic necessity” to protect low-income households from being priced out of groceries. All products receive the same tax reduction, and "no differentiation" is made between different products with different environmental footprints, Plinke pointed out.

She said that “removing VAT reductions for meat products can reduce environmental footprints of food consumption” by 3.5 to 5.7 percent in the EU.

Plinke argues the costs are "relatively limited" if governments redistribute the additional tax revenue back to citizens.

Carbon tax on food?

The study's second policy option — a carbon price of approximately €52 per tonne of CO2 on all food products — could be even more effective than the proposed VAT reform. While both policies achieve the same five percent reduction in greenhouse gas emissions, the carbon price delivers significantly larger environmental co-benefits.

It would, the authors claim, nitrogen emissions by an additional 16,805 tonnes, phosphorus by 891 tonnes, water consumption by 486 cubic megametres, and land use by 0.687 million hectares compared to the VAT reform alone.

"From an economic viewpoint, this is the more favourable policy simply because it's more precise in actually targeting the environmental cost," Plinke told EUobserver.

The carbon price would also prove cheaper for consumers, costing an average of just €12 per household annually (compared to €26 for the VAT reform) — provided tax revenues are redistributed.

However, Plinke acknowledged this approach faces "much more challenging" implementation hurdles, requiring extensive data collection and monitoring of emissions along entire supply chains, which would demand "considerably more time and administrative capacity."

Whether and how any such redistribution instruments are implemented lies with national capitals. But the author warned that “low-income households are over-proportionately burdened if there's no compensation mechanism.”

However, with the European Commission and parliament rolling back existing green deal commitments, and amid broader political headwinds against climate action, such radical policies are unlikely to meet with much political favour.

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