Policymakers must take account of public opinion in carbon pricing policies

Governments and policymakers around the world must take more account of public opinion and not just economic arguments if they are to introduce more and stronger carbon pricing to cut greenhouse gas emissions, according to a new study published in Nature Climate Change.

According to the World Bank only 45 countries or national jurisdictions have introduced pricing, representing only 15 per cent of global greenhouse gas emissions. In the United States, for instance, a few states have introduced carbon pricing but there is no federal scheme. However, many countries and regions are now considering whether to introduce carbon taxes.

The new study, by leading economists including Professor Nicholas Stern, chair of the Grantham Research Institute and former World Bank Chief Economist, points out that a key barrier to implementing more and greater carbon pricing is public acceptability.

The researchers find that earmarking revenue from carbon tax for specific spending, including to return to taxpayers, can play a powerful role in creating and implementing policies to close the gap between actual carbon prices and those required to achieve ambitious climate change mitigation.

The paper states: “when carbon revenues go towards the general government budgets, some studies have found that public acceptability is lower. If instead carbon revenues are earmarked for a specific purposes – notably as targeted green investments or transfers to particularly affected groups – citizens report greater acceptability of carbon pricing.”

A carbon price of $40-$80/tCO2 by 2020, rising to $50-$100/tCO2 by 2030 would be consistent with the Paris Agreement goals. Currently less than 3% of existing carbon prices are above $40/tCO2.

The paper highlights that despite “setbacks over the past two decades” there are more than 60 national or subnational carbon pricing initiatives generating over US$20 billion in revenue annually. But it adds that “the scale and ambition of carbon pricing will need to increase significantly to realise the world’s climate targets.”

The paper suggests that returning revenues from carbon pricing – a “cheque in the post” for households for instance – could increase public acceptability and the ability of policy-makers to implement carbon pricing.

The paper states: “our findings suggest lump-sum dividends are more stable over time [than green spending or tax cuts] particularly in countries bogged down with issues of economic inequality, political distrust, and polarization. If their benefits are clearly communicated to the public, they might outperform other mechanisms in terms of acceptability”.

The paper adds that “directed or uniform transfers to citizens would benefit most poor households since they would receive more in transfers than they spend on taxes.” However, it points out that “more research is required on whether lump-sum dividends are perceived as egalitarian or not.”

The paper points out that “there are trade-offs between carbon revenue uses that are most popular to citizens and those that narrowly compensate emission-intensive companies. The focus of some governments on the latter is understandable given that emissions-intensive industries tend to be more politically active in opposing carbon pricing than others are in supporting it.”

It adds that “the carbon price is more likely to survive successive partisan changes in government if it benefits constituencies across the political spectrum. While this could be achieved by the concentration of benefits on small but diverse and influential groups, it could also involve recycling revenues to the largest possible proportion of the populations.”

The paper concludes that: “the ideal recycling of carbon pricing revenue strongly depends on the political context….earmarking the revenue for green spending might be the option of choice if the main obstacle is that citizens are unconvinced of the environmental benefit of high carbon prices. Uniform lump-sum recycling is favourable in more general circumstances since it may ensure broad public support.”

This finding aligns with recent proposals in the United States for a ‘fee-and-dividend’ approach to carbon pricing.

Making Carbon Pricing Work for Citizens by David Klenert, Linus Mattauch, Emmanuel Combet, Ottmar Edenhofer, Cameron Hepburn, Ryan Rafaty and Nicholas Stern, Nature Climate Change, DOI: 10.1038/s41558-018-0201-2

For more information about this media release please contact Victoria Druce on +44 (0) 207 107 5865 or v.druce@lse.ac.uk