Hostname: page-component-7479d7b7d-fwgfc Total loading time: 0 Render date: 2024-07-14T15:06:18.389Z Has data issue: false hasContentIssue false

Behavioural Economics and Public Support for Carbon Pricing: A Revenue Recycling Scheme to Address the Political Economy of Carbon Taxation

Published online by Cambridge University Press:  27 August 2019

Goran DOMINIONI*
Affiliation:
At the time when this article was written, Goran Dominioni was working as Consultant at the Macroeconomics, Trade and Investment Global Practice, World Bank. The article carries the name of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this article are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organisations, or those of the Executive Directors of the World Bank or the governments they represent.
Dirk HEINE
Affiliation:
Dirk Heine is an Economist at the Macroeconomics, Trade and Investment Global Practice, World Bank Group, and an Associate Fellow at the Hoover Chair for Economic and Social Ethics, Université catholique de Louvain.
*
Corresponding author: gdominioni@worldbank.org.

Abstract

Even though carbon pricing is widely accepted as the most efficient policy instrument for climate change mitigation, it has been severely held back by a lack of public support. Building on research in behavioural sciences, we propose a revenue recycling scheme that aims to foster public support for carbon taxes. The scheme has two main strengths: (i) it may allow the implementatin of carbon taxes with higher tax rates than those currently prevailing in most jurisdictions; (ii) it relies on a number of accessible technologies, and thus it can be implemented in a wide variety of settings, both in urban and rural areas of developing and developed countries.

Type
Articles
Copyright
© Cambridge University Press 2019 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

1 IPCC, “Global Warming of 1.5°C” (2018).

2 Baranzini, A et al, “Carbon Pricing in Climate Policy: Seven Reasons, Complementary Instruments, and Political Economy Considerations” (2017) Wiley Interdisciplinary Reviews: Climate Change 8.4; Bowen, A, “The Case for Carbon Pricing: Policy Brief” (2011) The Grantham Research Institute on Climate Change and the Environment 1; Stiglitz, J et al, “Report of the High-Level Commission on Carbon Prices” (Washington DC 2017); IPCC, supra, note 1Google Scholar.

3 AaVv, , “Economists’ Statement on Carbon Dividends” Wall Street Journal (New York, 17 January 2019).Google Scholar

4 World Bank Group, “State and Trends of Carbon Pricing 2019” (Washington, DC, World Bank 2019).Google Scholar

5 Carattini, S et al, “How To Make Carbon Taxes More Acceptable” (2017) www.lse.ac.uk/GranthamInstitute/publication/make-carbon-taxes-acceptable/; Carattini, S et al, “Overcoming Public Resistance To Carbon Taxes” (2018) Wiley Interdisciplinary Reviews: Climate Change 9:5; Klenert, D, “Making Carbon Pricing Work for Citizens” (2018) Nature Climate Change 8; Rabe, B, “Can We Price Carbon?” (Cambridge, MIT Press 2018).Google Scholar

6 Carattini et al (2017), supra, note 5.

7 Carattini et al (2017), supra, note 5; Carattini et al (2018), supra, note 5; Pigato, MA (ed), “Fiscal Policies for Development and Climate Action” (Washington, DC, World Bank 2019).Google Scholar

8 Carattini et al (2017), supra, note 5.

9 Metivier, C and Postic, S, “Carbon Pricing Across The World: How To Efficiently Spend Growing Revenues?” (2019) I4CE Policy Brief.Google Scholar

10 World Bank Group, supra, note 4.

11 World Bank Group, supra, note 4.

12 For instance, important exemptions apply to emissions from the international maritime transport sector. For a discussion of this problem and of potential regional solutions, see G. Dominioni et al, “Regional Carbon Pricing for International Maritime Transport: Challenges and Opportunities for Global Geographical Coverage” (The World Bank, 2018).

13 Stiglitz et al, supra, note 2.

14 Howard, P and Schwartz, J, “Think Global: International Reciprocity as Justification for a Global Social Cost of Carbon” (2017) Columbia Journal of Environmental Law 24; Nordhaus, WD, “Revisiting the Social Cost of Carbon” (2017) 114 Proceedings of the National Academy of Sciences 7.Google Scholar

15 Environmental Protection Agency, “EPA Fact Sheet – Social Cost Of Carbon” (EPA 2016).

16 Nordhaus, WD, “‘The Stern Review’ On the Economics of Climate Change” (National Bureau of Economic Research 2006) 12741.CrossRefGoogle Scholar

17 Giglio, S et al, “Climate Change and Long-Run Discount Rates: Evidence from Real Estate” (2015) NBER Working Paper No 21767.CrossRefGoogle Scholar

18 Weitzman, ML, “On Modeling and Interpreting the Economics of Catastrophic Climate Change” (2009) 91 The Review of Economics and Statistics 1.CrossRefGoogle Scholar

19 Faure, M and Fenn, P, “Retroactive Liability and the Insurability of Long-Tail Risks” (1999) 19(4) International Review of Law and Economics 487; Lontzek, TS et al, “Stochastic Integrated Assessment of Climate Tipping Points Indicates the Need for Strict Climate Policy” (2015) 5 Nature Climate Change 441; Stern, N, “Stern Review: The Economics of Climate Change” (London, HM Treasury 2006).Google Scholar

20 Neumayer, E, “A Missed Opportunity: The Stern Review On Climate Change Fails to Tackle the Issue Of Non-Substitutable Loss Of Natural Capital” (2007) 17(3–4) Global Environmental Change 297CrossRefGoogle Scholar.

21 Anthoff, D et al, “Equity Weighting and the Marginal Damage Costs of Climate Change” (2009) 68(3) Ecological Economics 836CrossRefGoogle Scholar.

22 Baranzini et al, supra, note 2; Pigato, supra, note 7.

23 Parry, I et al, “How Much Carbon Pricing Is in Countries’ Own Interests? The Critical Role of Co-Benefits” (2015) 6(4) Climate Change Economics 1CrossRefGoogle Scholar.

24 Coste, A et al, “Staying Competitive: Productivity Effects of Environmental Taxes” in Fiscal Policies for Development and Climate Action (Washington DC, World Bank Group 2019).Google Scholar

25 Bento, A et al, “Environmental Policy in the Presence of an Informal Sector” (2018) Journal of Environmental Economics and Management 90Google Scholar.

26 Burke, P and Shuhei, N, “Gasoline Prices and Road Fatalities: International Evidence” (2015) 53(3) Economic Inquiry 1437CrossRefGoogle Scholar.

27 Pigato, supra, note 7.

28 S Elgie and J McClay, “BC’s Carbon Tax Shift: Results” (Sustainable Prosperity, 2013) 1–10.

29 Beck, M et al, “Carbon Tax and Revenue Recycling: Impacts On Households in British Columbia” (2015) Resource and Energy Economics 41Google Scholar.

30 Beck, M et al, “A Rural Myth? Sources and Implications of the Perceived Unfairness of Carbon Taxes in Rural Communities” (2016) Ecological Economics 124CrossRefGoogle Scholar.

31 Carattini et al (2018), supra, note 5.

32 ibid.

33 Carattini et al (2017), supra, note 5; Klenert, supra, note 5; Pigato, supra, note 7.

34 Carattini et al (2018), supra, note 5.

35 Baranzini et al, supra, note 2; IMF, Fiscal Policies for Paris Climate Strategies—from Principle to Practice, Policy Paper No 19/010 (2019)CrossRefGoogle Scholar.

36 Baranzini et al, supra, note 2; Gevrek, EZ and Uyduranoglu, A, “Public Preferences For Carbon Tax Attributes” (2015) Ecological Economics 118; Kallbekken, S and Sælen, H, “Public Acceptance For Environmental Taxes: Self-Interest, Environmental and Distributional Concerns” (2011) 39(5) Energy Policy 2966Google Scholar.

37 Carattini et al (2017), supra, note 5; Gevrek and Uyduranoglu, supra, note 36; Murray, B and Rivers, N, “British Columbia’s Revenue-Neutral Carbon Tax: A Review of the Latest “Grand Experiment” in Environmental Policy” (2015) Energy Policy 86 Google Scholar.

38 Beck, supra, note 30.

39 Pigato, supra, note 7.

40 ibid.

41 ibid.

42 Haushofer, J and Fehr, E, “On the Psychology of Poverty” (2014) 344:6186 Science 862867 CrossRefGoogle Scholar.

43 Haushofer and Fehr, supra, note 42.

44 Cardenas, JC and Carpenter, J, “Behavioural Development Economics: Lessons From Field Labs In The Developing World” (2008) 44(3) Journal of Development Studies 337; Duflo, E et al, “Nudging Farmers to Use Fertilizer: Theory and Experimental Evidence from Kenya” (2011) 101(6) American Economic Review; Tanaka, T et al, “Risk and Time Preferences: Linking Experimental and Household Survey Data from Vietnam” (2010) 100(1) The American Economic Review 2350CrossRefGoogle Scholar.

45 Dresner, S et al, “Social and Political Responses to Ecological Tax Reform in Europe: An Introduction to the Special Issue” (2006) 34(8) Energy Policy 895 CrossRefGoogle Scholar.

46 Kallbekken, S et al, “Do You Not Like Pigou, Or Do You Not Understand Him? Tax Aversion and Revenue Recycling In The Lab” (2011) 62(1) Journal of Environmental Economics and Management 53 CrossRefGoogle Scholar.

47 Andersson, J, “Cars, Carbon Taxes and CO2 Emissions” (2017), available at <www.lse.ac.uk/GranthamInstitute/wp-content/uploads/2017/03/Working-paper-212-Andersson_update_March2017.pdf>>Google Scholar.

48 Steg, L et al, “Why Are Energy Policies Acceptable and Effective?” (2006) 38(1) Environment and Behavior CrossRefGoogle Scholar.

49 Carattini et al (2018), supra, note 5.

50 Alberini, A et alPolicy v Individual Heterogeneity in the Benefits of Climate Change Mitigation: Evidence from a Stated-Preference Survey” (2018) Energy Policy 121 Google Scholar.

51 Dal Bó, E et al, “The Demand for Bad Policy when Voters Underappreciate Equilibrium Effects” (2018) 85(2) The Review of Economic Studies 964 CrossRefGoogle Scholar.

52 Carattini, et al, “Green Taxes in a Post-Paris World: Are Millions of Nays Inevitable?” (2017) 68(1) Environmental and Resource Economics 97 CrossRefGoogle Scholar; Klenert, supra, note 5.

53 ibid.

54 Pigato, supra, note 7.

55 Stigler, GJ, “The Theory of Economic Regulation” (1971) 2(1) The Bell Journal of Economics and Management Science 3; Trebilcock, MJ, Dealing with Losers: the Political Economy of Policy Transitions (Oxford University Press 2014)CrossRefGoogle Scholar.

56 Olson, M, Logic of Collective Action: Public Goods and the Theory of Groups (Harvard University Press 1965); Peltzman, S, The Economic Theory of Regulation after a Decade of Deregulation (Brookings Papers on Economic Activity. Microeconomics, Washington DC 1989); Stigler, supra, note 55Google Scholar.

57 Cherry, TL et al, “Accepting Market Failure: Cultural Worldviews and The Opposition To Corrective Environmental Policies” (2017) Journal of Environmental Economics and Management 85 Google Scholar.

58 ibid.

59 Kahan, D et al, “Cultural Cognition of Scientific Consensus” (2011) 14(2) Journal of Risk Research 147 CrossRefGoogle Scholar.

60 Clinch, PJ et al, “Environmental and Wider Implications of Political Impediments To Environmental Tax Reform” (2006) 34(8) Energy Policy 960 CrossRefGoogle Scholar; Dresner et al, supra, note 45; Klenert, supra, note 5; Pigato, supra, note 7.

61 Rivlin, AM, “The Continuing Search for a Popular Tax” (1989) 79(2) The American Economic Review 113 Google Scholar.

62 Pigato, supra, note 7.

63 Pigato, supra, note 7.

64 Guiso, L and Paiella, M, “Risk Aversion, Wealth, and Background Risk” (2008) 6(6) Journal of the European Economic Association 1109; Heinemann, F, “Measuring Risk Aversion and the Wealth Effect” in Cox, J and Harrison, G (eds), Research in Experimental Economics (Bingley, JAI Press 2008); Hopland, AO et al, “Income And Choice Under Risk” (2016) Journal of Behavioral and Experimental Finance 12; Liu, X et al, “Does Relative Risk Aversion Vary with Wealth? Evidence from Households’ Portfolio Choice Data” (2016) Journal of Economic Dynamics and Control 69, available at <papers.ssrn.com/sol3/papers.cfm?abstract_id=2033427>CrossRefGoogle Scholar.

65 Haushofer and Fehr, supra, note 42.

66 Carattini et al (2018), supra, note 5; Pigato, supra, note 7.

67 World Bank Group, supra, note 4.

68 Carattini et al (2017), supra, note 5; Carattini et al (2018), supra, note 5.

69 Carattini et al (2017), supra, note 5; Cherry et al, supra, note 56.

70 Ellickson, RC, “The Market for Social Norms” (2001) 3(1) American Law and Economics Review 1 CrossRefGoogle Scholar.

71 Williams, RC III, “Environmental Taxation” in Auerbach, A and Smetters, K (eds), The Economics of Tax Policy (Oxford, Oxford University Press 2017)Google Scholar.

72 Williams, supra, note 71.

73 Sinn, H-W, “Public Policies Against Global Warming: A Supply Side Approach” (2008) 15(4) International Tax and Public Finance 360 CrossRefGoogle Scholar.

74 van der Ploeg, F and Withagen, C, “Global Warming and The Green Paradox: A Review of Adverse Effects of Climate Policies” (2015) 9(2) Review of Environmental Economics and Policy 285 CrossRefGoogle Scholar.

75 Bauer, N et al, “Divestment Prevails Over the Green Paradox When Anticipating Strong Future Climate Policies” (2018) 8 Nature Climate Change 130 CrossRefGoogle Scholar.

76 OECD, “Taxing Energy Use 2018: Companion to the Taxing Energy Use Database” (OECD Publishing, Paris 2018)Google Scholar.

77 ibid.

78 Carattini et al (2017), supra, note 5.

79 Carattini et al (2017), supra, note 5; World Bank Group, supra, note 4.

80 Hirst, D, “Carbon Price Floor (CPF) And The Price Support Mechanism” (2018) House of Commons Library Briefing Paper 05927Google Scholar.

81 World Bank Group, supra, note 4.

82 Eg Pigato, supra, note 7.

83 Pigato, supra, note 7.

84 Carattini et al (2018), supra, note 5.

85 Berry, A, “The Distributional Effects Of A Carbon Tax And Its Impact On Fuel Poverty: A Microsimulation Study In The French Context” (2019) Energy Policy 124 Google Scholar.

86 Mathur, A and Morris, AC, “Distributional Effects Of A Carbon Tax In Broader US Fiscal Reform” (2014) Energy Policy 66 Google Scholar.

87 IMF, supra, note 35.

88 As of 27 May 2019, more than 3,554 US economists, including 27 Nobel laureates, and 4 former chairs of the Federal Reserve, have signed a petition in favour of a carbon tax for the US, with revenues recycled via cash transfers to households. Note that this statement does not specify whether transfers should be antedated. See <www.clcouncil.org/economists-statement/>.

89 Pigato, supra, note 7.

90 ibid.

91 Hardisty, DJ and Weber, EU, “Discounting Future Green: Money Versus The Environment” (2009) 138(3) Journal of Experimental Psychology: General 329 CrossRefGoogle ScholarPubMed.

92 Lempert, KM and Phelps, EA, “The Malleability of Intertemporal Choice” (2016) 20(1) Trends in Cognitive Science 64 CrossRefGoogle ScholarPubMed.

93 Marzilli Ericson, KM and Fuster, A, “The Endowment Effect” (2014) 6(1) Annual Review of Economics 555 Google Scholar.

94 Marzilli Ericson, KM and Fuster, A, “Expectations As Endowments: Evidence On Reference-Dependent Preferences From Exchange and Valuation Experiments” (2011) 126(4) The Quarterly Journal of Economics 1897; Kőszegi, B and Rabin, M, “Reference-Dependent Risk Attitudes” (2007) 97(4) The American Economic Review 1047CrossRefGoogle Scholar.

95 Reb, J and Connolly, T, “Possession, Feelings Of Ownership, and The Endowment Effect” (2007) 2(2) Judgment and Decision Making 107 Google Scholar.

96 Carmon, Z and Ariely, D, “Focusing On The Forgone: How Value Can Appear So Different To Buyers And Sellers” (2000) 27(3) Journal of Consumer Research 360 CrossRefGoogle Scholar.

97 Guillaume, DM et al, “Iran: The Chronicles Of The Subsidy Reform” (2011) International Monetary Fund No 11-167 Google Scholar; Pigato, supra, note 7.

98 Tanjim, H and List, JA, “The Behavioralist Visits The Factory: Increasing Productivity Using Simple Framing Manipulations” (2012) 58(12) Management Science 2151 Google Scholar.

99 Fryer, RG et al, “Enhancing The Efficacy Of Teacher Incentives Through Loss Aversion: A Field Experiment” (2012) National Bureau of Economic Research No w18237 Google Scholar.

100 IMF, “2017 Financial Access Survey: Tracking Access to Financial Services” (Washington DC 2017)Google Scholar.

101 G Smith et al “New Technology Enhancing Humanitarian Cash and Voucher Programming” (CaLP 2011).

102 Oberländer, L and Brossmann, M, Electronic Delivery Methods of Social Cash Transfers (Eschborn, 2014)Google Scholar.

103 Aker, JC et al, “Zap It to Me: The Short-Term Impacts of a Mobile Cash Transfer Program” (Washington DC 2011); Smith et al, supra note 99CrossRefGoogle Scholar.

104 Oberländer and Brossmann, supra, note 102.

105 Inchauste, G and Victor, DG, The Political Economy of Subsidy Reform (Washington DC 2017)CrossRefGoogle Scholar.

106 Bold, C et al, Social Cash Transfers and Financial Inclusion: Evidence from Four Countries (CGAP 2012)Google Scholar.

107 GSMA, State of the Industry Report on Mobile Money (GSM Association 2017)Google Scholar.

108 IMF, supra, note 100.

109 ibid.

110 ibid.

111 ibid.

112 Inter Media, “Nigeria Financial Inclusion Insights Survey” (2016).

113 Oberländer and Brossmann, supra, note 102.

114 Aker, supra, note 103.

115 Oberländer and Brossmann, supra, note 102.

116 MF, supra, note 100.

117 Similarly, Klenert, supra, note 5.

118 Finkelstein, A, “E-Ztax: Tax Salience and Tax Rates” (2009) 124(3) The Quarterly Journal of Economics 969 CrossRefGoogle Scholar.

119 Pigato, supra, note 7.

120 Dal Bó et al, supra, note 51; Sausgruber, and Tyran, , “Are we taxing ourselves? How deliberation and experience shape voting on taxes” (2011) Journal of Public Economics 95; Weber, and Schram, , “The Non-Equivalence of Labour Market Taxes: A Real-effort Experiment” (2017) 127 Economic Journal 604Google Scholar.

121 IMF, supra, note 35; IPCC, 2018 supra, note 3; World Bank Group, supra, note 4.

122 Carattini et al (2017), supra, note 5; Cherry et al, supra, note 57; Trebilcock, supra, note 55.

123 World Bank Group, supra, note 4.