Public Support for Carbon Pricing

There is a broad consensus among economists that carbon pricing is one of the most effective and efficient policies to mitigate climate change. Yet, carbon pricing proposals have been rejected in various countries either by referendum or by popular unrest. 

There are several reasons for popular resistance, including mistrust of government leaders (e.g., carbon pricing is just a tax increase in disguise), fairness considerations (the belief that carbon pricing disproportionately harms the poor), and underestimation of the benefits from reduced emissions and tax revenues.

A recent study attempts to get a better understanding of the causes of carbon pricing aversion. 

The authors conducted an experiment with a representative sample of the German population.  Participants (a total of 1,100) were asked to vote on whether or not to implement carbon pricing schemes that differed in how revenues from carbon pricing were used. Importantly, these decisions had real consequences: the participants’ decisions resulted in actual monetary payoffs and actual CO2 emissions. 

The authors show that uniform carbon dividends (equal per capita transfers to all citizens) receive substantially more support than (a) a carbon dividend that favors poorer people; (b) earmarking revenues for climate projects; and especially (c) using revenues for the general government budget. Among the uniform carbon dividend schemes, a Climate Premium that pays a fixed upfront transfer equal to the expected carbon revenues gathers more support than a carbon dividend scheme where the size of the transfer is determined ex-post based on the actual revenues. 

A summary of the results can be found in the figure below. It shows the share of participants voting in favor of the carbon price under five different revenue recycling schemes. The data are presented as mean values with error bars indicating a 95% confidence interval. Recall that “Climate Premium” corresponds to the policy of paying a fixed upfront transfer equal to the expected carbon revenues. 

Note that, while there is variation in the fraction of participants favoring carbon pricing, the values are generally quite high. In fact, comparing the experiment results with those of surveys, the authors show that both participants and experts underestimate public support for carbon pricing. 

Andrej Woerner, Taisuke Imai, Davide Pace, and Klaus Schmidt 

How to Increase Public Support for Carbon Pricing with Revenue Recycling

CEPR Discussion Paper 19590