A Carbon Price by Another Name May Seem Sweeter: Consumers Prefer Upstream Offsets to Equivalent Downstream Taxes

Abstract

Consumers are influenced, not only by prices, but also by how those prices are labelled, and by the policies that undergird those prices. Steps to limit carbon emissions, including putting a “price” or a “limit” on emissions, can be undertaken in a variety of ways, and these policies are associated with different labels, including carbon taxes, permits, or offsets. Furthermore, the emissions can be regulated at many different points in the production and usage system: regulations are applied to the extraction and importation of fossil fuels, while regulations are applied to the sale of products and services. From a conventional economic standpoint, these points of regulation should have roughly equivalent impacts on carbon emissions. However, the impact of different policy choices and of vs frames on consumer perceptions and preferences is largely unknown. In several studies examining consumer preferences in the airline industry, we find that consumers respond significantly more favorably to a description of upstream offsets than to other frames such as downstream taxes. Furthermore, these framing differences are moderated by political ideology, such that Republicans show a particular distaste for downstream taxes.