Climate Policy and Moral Consumers*

Abstract

AbstractThis paper analyzes climate policy (in the form of emissions caps) in a multi‐country game when consumers have preferences with different degrees of morality. In the absence of climate policy, the larger the consumers’ degree of morality, the lower the energy consumption and climate damage. Moral consumer‐voters elect either emissions caps (direct democracy) under majority rule, or policymakers who then choose emissions caps (representative democracy). If voters take prices as given, then election‐winning emissions caps are tighter, the lower the median voters’ degree of morality. If voters seek to influence prices in their favor, then strong strategic price effects are generated and the election‐winning emissions caps are less stringent, the lower the median voters’ degree of morality. We also show that the morality of election‐winning policymakers differs from the morality of median voters. It is possible that a moral median voter elects a policymaker with zero morality who then implements an emissions cap that might be larger than emissions in the absence of climate policy.