A carbon price by another name may seem sweeter: Consumers prefer upstream offsets to downstream taxes

Abstract

Steps to limit greenhouse gas emissions, including putting a “price” on emissions, can be undertaken in a variety of ways, and these policies are associated with different terminology, including carbon “taxes” or “offsets.” Furthermore, in the case of fossil fuels, the emissions can be regulated at different points in the production and usage system: “upstream” regulations are applied to the extraction and importation of fossil fuels, while “downstream” regulations are applied to the usage of products and services. From a conventional economic standpoint, under a range of circumstances, these points of regulation should have effectively equivalent impacts on economic incentives, decisions and resulting carbon emissions. However, the impact of “upstream” vs “downstream” policies on consumer perceptions and preferences is largely unknown. In three studies (two main studies plus one supplemental study) examining consumer preferences in the airline industry, we find that consumers respond significantly more favorably to a description of upstream offsets than to other pricing methods such as downstream taxes. To explain this preference, we find that the upstream offset policy is uniquely perceived to address both the causes and consequences of carbon emissions, which in turn predicts consumer preference and policy support.