Exploring the theoretical link between profitability and luxury emissions

By Stefano Di Bucchianico, Federica Cappelli

PKES Working Paper 2114

October 2021

Given that the richest 10% of the world population is responsible for more than half of global greenhouse gas emissions between 1990 and 2015, understanding the sources of excessive consumption of wealthier households and the ways to reduce them becomes especially important. Indeed, subsistence emissions are the emissions generated to satisfy basic needs, while luxury emissions are those generated to satisfy non-basic needs and that can, thus, be avoided or reduced. We make use of the ‘integrated wage-commodity sector’ model to study this issue. By using this model, we are able to connect the double role of luxury goods. On the one hand, they are the main reason why profits exist (together with surplus production of other wage-goods), given that profitability stems from surplus production delivered by workers. On the other hand, they are the major constituent of wasteful luxury consumption and, hence, major drivers of CO2 emissions. Three different scenarios (‘green growth’, ‘reformist’, and ‘just transition’) are depicted and connected to the possible policy actions to be undertaken to address social and environmental predicaments. The just transition scenario seems to be the only viable option to respect both social and environmental boundaries.

Keywords: rate of profit, luxury goods, GHG emissions, decent living standard, climate change

JEL classification: B24 Q52 Q57