Many environmental economists argue that pricing and taxing carbon are critical measures for climate change mitigation. But last November, voters in Washington State overwhelmingly rejected a proposed carbon tax that supporters say would have generated more than $2 billion annually while reducing the state’s carbon emissions.
 
An economist at the Yale School of Forestry & Environmental Studies [F&ES] says voters might have voted differently if they understood how carbon taxes work.
 
A new study led by Stefano Carattini, a postdoctoral fellow at the Yale School of Forestry & Environmental Studies [F&ES], suggests how a carbon tax is structured — and how its benefits are communicated to voters — are vital to building public support.
 
The study, conducted in Switzerland in 2015 after a similar proposal failed by more than two million votes, cites distributional and competitiveness concerns among the most common reasons why voters rejected the revenue-neutral carbon tax. Carattini says Swiss voters preferred that revenues be allocated for environmental purposes because, like voters in Washington, they were suspicious that the tax would actually lower greenhouse gas emissions.
 
“People who believe that environmental taxes work are more likely to vote ‘yes;’ however, there are not many who believe that,” Carattini said. “One problem with a carbon tax is you don’t really see the tax working. It’s intangible.” Given the intangibility of carbon taxes, it is important that policymakers explain credible estimates on the expected environmental effects.
 
The study, appearing in the journal Environmental and Resource Economics, found that Swiss voters not only feared the tax would make local industries less competitive but also were concerned about distributional impacts of the regressive tax design. Regressive taxes on such products as tobacco, alcohol, and gasoline are unpopular with social and environmental justice advocates, Carattini says, because although all taxpayers face the same tax rate regardless of income, lower-income people are actually taxed a bigger share of their income than wealthier people.
 
“Carbon taxes tend to be regressive because, even though the richer you are the more you spend on energy, the portion of your income that you spend on energy decreases as your income increases,” he said. “Even if you show people that environmental taxes work, you need to make them progressive. Carbon taxes can be designed so that they do not hurt low-income people.”

The study, based on surveys of 1,500 voters, also suggests that people may be more likely to support carbon taxation if revenues are earmarked for environmental purposes, such as clean energy development, rather than being revenue neutral. Or they might back such taxes if they are clearly informed on how a carbon tax can achieve reductions in emissions even without earmarking. Lump sum transfers, also known as dividends, or other progressive structures may engender more support for carbon taxation, provided that their progressive properties are made salient.
 
Another key challenge to implementing a carbon tax is communicating effectively with the public, Carattini says. His team used a model of a Swiss economy to measure the effects of many carbon tax designs on greenhouse gas emissions, the economy as a whole, and low-income households — and then communicated those results to voters in their survey.         
 
“What you need to realize, and what we made clear in the paper, is that regardless of the use of revenues, every carbon tax is going to decrease greenhouse gas emissions,” Carattini said. “If you don’t tell people how the carbon taxes work — and that they work — you may have some opposition.”
 
The Swiss study, he said, suggests a national carbon tax with a lump-sum transfer would be the most popular amongst voters. “It’s a new tax, but it doesn’t mean you’re getting poorer,” he said. “Under this progressive design, low-income households on average get slightly richer.”
 
Many companies, such as Microsoft, are already implementing their own carbon pricing schemes. Last year, Yale University initiated a carbon charge to test the effectiveness and feasibility of internal carbon pricing on Yale’s campus.
 
Carattini believes it’s only a matter of time before more countries begin to embrace carbon taxation over renewable energy subsidies, which can be very expensive. “There are tradeoffs, for sure, but in the future I think carbon taxes will be used more often,” he said. “For those countries — and states — that committed to the Paris agreement, a carbon price is the cheapest way to meet their pledges.”
 
Read the paper at https://link.springer.com/article/10.1007/s10640-017-0133-8