Abstract
Carbon taxes represent a cost‐effective way to steer the economy toward a greener future. In the real world, their application has however been limited. In this paper, we address one of the main obstacles to carbon taxes: public opposition. We identify drivers of and barriers to public support, and, under the form of stylized facts, provide general lessons on the acceptability of carbon taxes. We derive our lessons from a growing literature, as well as from a combination of policy “failures” and “successes.” Based on our stylized facts, we formulate a set of suggestions concerning the design of carbon taxes. We consider the use of trial periods, tax escalators, environmental earmarking, lump‐sum transfers, tax rebates, and advanced communication strategies, among others. This paper contributes to the policy debate about carbon taxes, hopefully leading to more success stories and fewer policy failures.This article is categorized under: Climate Economics > Economics of Mitigation
Highlights
Putting a price on carbon is central to effective climate policy
We identify drivers of and barriers to public support, and, under the form of stylized facts, provide general lessons on the acceptability of carbon taxes
Agents react to the carbon price based on their marginal abatement cost
Summary
Global efforts to reduce greenhouse gas emissions need to step up in all economic sectors to meet the Paris Agreement target: to keep the rise in global mean temperatures well below 2 C above preindustrial levels This requires a variety of policy interventions, including subsidies to support the breakthrough of low-carbon technologies, regulatory standards to drive down the energy use of buildings, cars and appliances, and financing schemes to overcome capital constraints (Bowen & Fankhauser, 2017). Carbon pricing alters relative prices, leading to an automatic adjustment in behavior by firms and consumers, and creating a continuous incentive for investments in low-carbon technological improvements It works as a decentralized policy, in that it does not require regulators to have information on marginal abatement costs. By exploiting heterogeneity in marginal abatement costs, carbon pricing allows reducing the overall abatement cost (Weitzman, 1974)
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