Public support for carbon taxation

While 5,000 economists called for the rapid development of carbon taxation in the United States and Europe,1 the public often opposes this climate policy (Carattini et al 2018, Klenert and Hepburn 2018). In France, the government abandoned its plan for an ambitious carbon tax trajectory following protests by “yellow vests”.2

Why do citizens often oppose carbon taxation? Two common explanations are that citizens refuse to bear the full costs of climate change mitigation due to a lack of altruism, or that they disagree with how those costs are distributed. In a new paper (Douenne and Fabre 2022), we argue that a third mechanism may come into play – even when people are expected to benefit from carbon taxation, pessimistic beliefs about the effect of the policy could lead them to oppose it. It is not intuitive that people can benefit from a carbon tax. In fact, carbon taxation alone is generally regressive because poorer households on average spend a larger share of their income on polluting goods. Yet, since they spend less on these goods than wealthier households in absolute terms, it suffices to transfer the proceeds of the tax as a uniform transfer (a policy known as a carbon tax and dividend) to design a policy progressive and ensure that a majority of the wealthiest people (Pizer and Sexton 2019, Douenne 2020, Paoli and van der Ploeg 2021).

Pessimistic beliefs and public support for carbon taxation

We assess attitudes towards a carbon tax and a dividend in France during the yellow vest movement. We created a survey administered to more than 3,000 respondents representative of the French population in February/March 2019. We presented respondents with a neutral budget of €50/tCO2 carbon tax and dividend policy, with information on the effect on energy prices (e.g. +€0.11 per liter of petrol) and the transfer each household would receive (€110/year for each adult ). We find that people largely reject this proposal – only 10% of respondents to our survey approve, while 70% do not accept the reform. This level of rejection is very high compared to what was measured before or after the movement of the yellow vests, where we see that around half of the population accepts an indefinite increase in the carbon tax (ADEME 2020). Thus, a first insight from our survey is that public opinion can be very volatile and react strongly to contemporary events.

Figure 1 CDF of objective (dark blue) versus subjective (orange) net gains from our taxes and dividends

To note: The dashed blue lines represent the distributions of objective gains in the extreme case of fully inelastic spending. The vertical dashed orange lines show the limits of the subjective earnings response intervals.

We then show that people hold pessimistic beliefs about politics. Using household budget survey data, we estimate that 70% of households would benefit financially from the policy (see solid blue line in Figure 1). In our own survey experience, we ask respondents to estimate their expected gain or loss from the reform (we proceed step by step, asking separately for the impact on their heating and transport expenditures). Only 14% think their household would benefit from the reform. This pessimism cannot be explained by a lack of knowledge of price elasticities, since respondents estimate them correctly in another question, and the gap between perceived and real net earnings would still be too great if respondents assumed that their expenditures were inelastic. . Similarly, respondents are pessimistic about the distributional and environmental effects of the policy. Only 20% think the policy would benefit the poorest households and 17% think the policy would be effective in reducing pollution and tackling climate change.

We also find that the more people are opposed to politics, the more pessimistic they are, and that the causality between beliefs and opposition runs in both directions. On the one hand, when provided with new information about politics, people reject the positive news but deal with the negative correctly. This phenomenon is stronger for people who initially oppose politics or who feel close to yellow vests, which is consistent with the endogenous formation of beliefs by reasoned reasoning. In other words, the less people like politics, the less likely they are to assimilate positive information about it. On the other hand, our survey design allows us to show that beliefs also causally determine support for politics. When they are convinced that they would gain financially, the probability that they accept the policy increases by 50 percentage points. Similarly, the likelihood of supporting it is 40 percentage points higher when people believe the policy would effectively reduce emissions.

To obtain causal effects, beliefs about environmental efficiency are instrumented by randomly (or not) providing information indicating that there is scientific consensus on the effectiveness of carbon taxation. Beliefs about one’s own gains are instrumented with two independent designs that both lead to very similar results. Our preferred design uses variations of the primary policy where the dividend is targeted to the bottom 20%, 30%, 40%, or 50% of the income distribution. Each respondent is randomly assigned a variant where they are eligible or not for the dividend. For example, a respondent in the 35th. percentile of the income distribution has an equal chance of being assigned the targeted reform to the bottom 40% (where it is eligible) or 30% (not eligible). This random allocation creates an exogenous variation in the belief of gaining or losing tax and the targeted dividend. Under the credible assumption that, subject to income and controlling for variant, eligibility affects acceptance only through belief in one’s own gain, our fuzzy regression discontinuity design correctly identifies the causal effect of the belief that one loses on the acceptance of the reform. Figure 2 shows that acceptance of a given variant is indeed higher for those eligible for the dividend, i.e. to the left of the income eligibility thresholds.

Figure 2 Acceptance of a fiscal and targeted dividend based on income (therefore eligibility for the dividend) and the objective of the variant (one color per variant)

To note: For example, the acceptance rate is 43% for those eligible for the dividend in the reform targeted at the poorest 20%, while it drops to 36% for those who are not eligible.

The previous results may explain how widespread opposition can gradually build around carbon tax proposals. If opinions shape beliefs, which in turn shape opinions, people’s pessimism caused by previous (unfair) reforms could lead them to oppose new (fair) policies.

An agenda for ambitious climate policies

While many French people reject a carbon tax with dividend, the vast majority are concerned about climate change and support other policies, as we show in a companion article using the same survey data (Douenne and Fabre 2020). The main findings of this paper are that people favor measures that bring co-benefits (such as reducing air pollution), prefer standards or subsidies to taxes, and strongly support public investment. A natural explanation for these preferences is that people favor policies with less salient costs, even though they may be less cost-effective (Levinson 2018). Yet, by providing alternatives to fossil fuels, these policies can also address critical barriers to changing habits. Indeed, we find that a crucial obstacle to changing habits is the lack of alternatives to fossil fuels such as public transport. Consistent with the literature (e.g. Bergquist et al. 2020), we find that the progressiveness of the policy set is also critical for acceptance.

picture 3 “Do you approve of an increase in the carbon tax if the revenues were used to…?

These findings suggest the next path to successful decarbonization in France and Europe. Above all, an information campaign could be launched to improve understanding of climate policies – which we find positively associated with support for measures – and to show that the European Green Deal responds to citizens’ equity concerns. Second, the government could develop alternatives to fossil fuels through various policies: investments, subsidies and regulations in favor of public transport, cleaner vehicles and thermal insulation, etc. (see Pisu et al. 2022 for an assessment of different policies). Finally, the extension of carbon pricing proposed by the European Commission should soon complete these policies, convinced by the progressiveness of a carbon price with a dividend and by the EU’s commitment to fair decarbonisation.

References

ADEME (2020), “Social representations of climate change: 21st wave”.

Bergquist P, M Mildenberg and LC Stokes (2020), ‘The combination of climate, economic and social policies is building public support for climate action in the United States’, Environmental Research Letters 15(5)

Carattini S, M Carvalho and S Fankhauser (2018), “Overcoming public resistance to carbon taxes”, Wiley’s Interdisciplinary Reviews: Climate Change 9(5).

Douenne T (2020), “The vertical and horizontal distributive effects of energy taxes: a case study of a French policy”, The Energy Diary 41(3).

Douenne T and A Fabre (2020), “French attitudes on climate change, carbon taxation and other climate policies”, Ecological economy 169(C).

Douenne T and A Fabre (2022), “Yellow vests, pessimistic beliefs and aversion to the carbon tax”, American Economic Journal: Economic Policy 14(1).

Klenert D and C Hepburn (2018), “Making carbon pricing work for citizen”, VoxEU.org, 31 July.

Levinson A (2018), “A carbon tax would be less regressive than energy efficiency standards”, VoxEU.org, 5 July.

Paoli, MC and R van der Ploeg (2021), “Recycling revenue to improve the political feasibility of carbon pricing in the UK”, VoxEU.org, 4 October.

Pisu M, FM D’Arcangelo, I Levin and A Johansson (2022), “A framework to decarbonise the economy”, VoxEU.org, 14 February.

Pizer, W and S Sexton (2019), “The Distributive Impacts of Energy Taxes”, Environmental Economics and Policy Review 13(1).

Endnotes

1 In 2019, the Climate Leadership Council published an opinion piece signed by 3,354 American economists in the Wall Street Journal in support of carbon taxation. A similar statement from the European Association of Environmental and Resource Economists was signed by 1,772 economists.

2 Initially introduced in 2014 at a level of €7/tCO2, the French carbon tax rose to €44.6/tCO2 in 2018 and was to increase further to reach €86.2/tCO2 in 2022. This plan was abandoned in November 2018, following large-scale protests by Yellow Vests – at the time widely supported by public opinion – against a backdrop of high fuel prices.

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