Building Public Support for Carbon Pricing

Goran Dominioni, Assistant Professor, Dublin City University

Anna Kovács, PhD Candidate, Erasmus University, Rotterdam

The COVID-19 pandemic has highlighted the difficulties of mobilising public support for policies perceived as costly but that are necessary to avoid severe future consequences for society. Carbon pricing shares these characteristics with COVID-19 containment policies. While carbon pricing is widely seen as an essential measure to cost-effectively avoid disastrous consequences of climate change, it still faces substantial public resistance. Traditional policy strategies to overcome this resistance have repeatedly shown their limits, but a growing strand of research highlights the potential of increasing policy ambition through behavioural insights.

Traditional Strategies

Governments have traditionally opted for phasing-in carbon pricing to address public opposition, i.e. starting with low tax rates and gradually increasing them over time. Another traditional approach has been focusing on revenue use to address economic, social, and environmental concerns. Both strategies can be useful to prevent public opposition, but experience also shows their insufficiency in many jurisdictions. The French ‘Yellow Vests’ movement and the 2018 ballot rejection of the Washington Initiative 1631 are just two examples.

These approaches also have other drawbacks. Phasing-in delays mitigation and may lead to the overconsumption of fossil fuels. Additionally, in some countries, popular revenue uses (e.g., for green investments) may be constrained by competing fiscal needs.

Behaviourally-informed Strategies

In light of the limits of traditional approaches, a growing strand of research offers complementary solutions to overcome public resistance to carbon pricing by building on behavioural research.  In a recent article, one of us surveyed this research and its use in practice.

Behavioural carbon pricing policy builds frequently on framing, i.e. the psychological phenomenon by which people’s preferences towards a set of options depend on how the choice is presented, even though the expected outcomes of the choices do not change. For instance, naming a carbon tax a “climate contribution” or a “carbon fee” may reduce public opposition to these measures. Since this strategy is low-cost, various jurisdictions seem to have adopted it in recent years. Examples include Connecticut and Maryland which all use the word “fee” instead of “tax”. Another use of framing research is exemplified by a 2019 World Bank report, which suggests characterising carbon pricing as a form of subsidy removal to reduce its perceived coerciveness.

Figure 1. Sequencing of behaviourally-informed environmental tax reform

More recent proposals build on the endowment effect, i.e. the phenomenon whereby people value more those things to which they feel entitled. Dominioni & Heine (2019) propose a carbon tax revenue recycling scheme to distribute citizens projected carbon revenues on visible but frozen bank accounts before the tax is implemented. If the tax reform fails, recipients lose cash transfers. Due to the endowment effect, citizens are likely to value more the cash transfers if they actually see the sum credited on visible bank accounts, than if they were simply promised a future cash transfer by the government. As a result, the revenue recycling scheme motivates cash transfer recipients to support the tax reform. 

People may reject information about the benefits of carbon pricing because they are ideologically averse to energy price increases (solution aversion) or to achieve identity-protective goals (i.e., politically motivated reasoning). Options to overcome politically motivated reasoning are to rely on identity affirmation and pluralistic advocacy. Pluralistic advocacy is the practice of seeking support for a policy from experts and public figures associated with a diverse range of values and identities; and identify affirmation refers to the practice of presenting information in a way that affirms the target audience’s values. 

One of us, proposes a way of operationalising identity affirmation by building on estimated measures of implicit carbon prices, i.e., carbon prices implemented through instruments that traditionally are not seen as carbon pricing policies, such as fuel taxes and fossil fuel subsidies reforms. Governments can educate the public about the climate and non-climate benefits of implicit carbon prices with the aim to informing the public about the benefits of explicit carbon pricing policies (carbon taxes and ETSs). In many countries – including the US – fuel taxes tend to be less politically contentious than carbon taxes and have been implemented by governments with different political orientations. Thus, policymakers would be able to use estimates of implicit carbon prices to engage in a dialogue with the public on the benefits of carbon pricing within the already existing fiscal framework without triggering politically motivated reasoning. Additionally, since this communication method does not involve new price increases, it could be used in communicating the benefits of carbon pricing to the segments of the population which reject this policy option due to fear of energy price increases.

Behavioural findings offer precious insights into increasing public support for carbon pricing. These insights can help to close the gap between current carbon prices and those needed to avoid the disastrous consequences of climate change. Policymakers that struggle to implement sufficiently ambitious carbon pricing policies may find a “new ally” in behavioral science.