Carbon Price Support Research Articles

Tailored Information and the Public Support for Carbon Pricing

Tailored Information and the Public Support for Carbon Pricing

The Cost of Carbon Leakage: Britain’s Carbon Price Support and Cross-border Electricity Trade

Carbon taxes create global benefits unless offset by increased emissions elsewhere. An additional carbon tax in one country may cause leakage through imports and will also increase costs by creating a wedge between economic marginal costs in different markets, causing an offsetting deadweight loss. We estimate the global benefit, carbon leakage and deadweight cost of the British Carbon Price Support (CPS) on GB’s cross-border electricity trade with France and The Netherlands. Over 2015–2020 the unilateral CPS created €72넠 m/yr deadweight loss, about 31% of the initial economic value created by the interconnector, or 2.5% of the global emissions benefit of the CPS at €2.9±0.1 bn/yr. About 16.3±3.5% of the CO2 emissions reduction is undone by France and The Netherlands, the monetary loss of which is about €584±127 m/yr.

Experts’ conjectures, people’s statements and true preferences: The case of carbon price support

Experts’ conjectures, people’s statements and true preferences: The case of carbon price support

The Five Canadas of Climate Change: Using audience segmentation to inform communication on climate policy.

This study examines how unique audience segments within the Canadian population think and act toward climate change, and explores whether and how the level of audience engagement moderates the effect of various messages on support for climate policy. Drawing on a random probability sample of Canadian residents (N = 1207) conducted in October 2017, we first identify and describe five distinct audiences that vary in their attitudes, perceptions and behaviours with respect to climate change: the Alarmed (25%), Concerned (45%), Disengaged (5%), Doubtful (17%) and Dismissive (8%). We then explore how each segment responds to different messages about carbon pricing in Canada. We find that messages alluding to earmarking (i.e., "Invest in solutions") or leveling the playing field for alternative energy sources (i.e., "Relative price") increase support for a higher carbon price among the population as a whole. However, these messages decreased support for carbon pricing among more engaged audiences (e.g., Alarmed) when a low carbon price was specified to the respondent. Meanwhile, the "Relative price" is the only message that increased policy support among less engaged audiences-the Concerned and the Doubtful. In addition to highlighting the importance of tailoring and targeting messages for differently engaged segments, these results suggest that communicating around the specific consequences of carbon taxes for the prices of some goods may be a fruitful way to enhance support for carbon taxes among relatively less engaged audiences.

Limited impacts of carbon tax rebate programmes on public support for carbon pricing

Revenue recycling through lump-sum dividends may help mitigate public opposition to carbon taxes, yet evidence from real-world policies is lacking. Here we use survey data from Canada and Switzerland, the only countries with climate rebate programmes, to show low public awareness and substantial underestimation of climate rebate amounts in both countries. Information was obtained using a five-wave panel survey that tracked public attitudes before, during and after implementation of Canada’s 2019 carbon tax and dividend policy and a large-scale survey of Swiss residents. Experimental provision of individualized information about true rebate amounts had modest impacts on public support in Switzerland but potentially deleterious effects on support in Canada, especially among Conservative voters. In both countries, we find that perceptions of climate rebates are structured less by informed assessments of economic interest than by partisan identities. These results suggest limited effects of existing rebate programmes, to date, in reshaping the politics of carbon taxation. Carbon tax rebate programmes have received increasing interest with the potential to raise public support for carbon pricing. However, results of online surveys based on existing real-world policies demonstrate such programmes have had limited political impacts to date.

Limited evidence that carbon tax rebates have increased public support for carbon pricing

Limited evidence that carbon tax rebates have increased public support for carbon pricing

Carbon pricing and power sector decarbonization: Evidence from the UK

Decreasing greenhouse gas emissions from electricity generation is crucial to tackle climate change. Empirically, however, little is known about the effectiveness of existing economic instruments in the power sector. This paper examines the impact of the UK Carbon Price Support (CPS), a carbon tax implemented in the UK power sector in 2013. Relative to a synthetic control unit built from other European countries, I find that emissions from the UK power sector declined by 20 to 26 percent per year on average between 2013 and 2017. The tax operated via three mechanisms: a decrease in emissions at the intensive margin; the closure of some high-emission plants at the extensive margin; and a higher probability of closure for plants already at risk due to European air quality regulations.

Climate change and carbon pricing: Overcoming three dimensions of failure

Pricing carbon to address climate change sparks divisions like few other policy options. From street riots to academic debate, it has stirred both passionate and principled disagreement, leaving scarce room for compromise between advocates and critics. Among scholars, what used to be nearly unanimous support for carbon pricing has ceded way to a more bifurcated landscape. We review the growing literature on carbon pricing shortfalls, and suggest a conceptual framework to differentiate three dimensions of failure, based on different manifestations of human behaviour: Homo Economicus, Homo Irrationalis, and Homo Politicus. We also apply this framework to identify and classify principles to overcome the three dimensions of failure. Our Perspective offers an agent-based view on the constraints that prevent deployment and efficient operation of carbon pricing in practice, and identifies pathways for improved policy design and implementation.

Effectiveness of climate policies: Carbon pricing vs. subsidizing renewables

Most but not all economists view carbon pricing as most effective to combat carbon emissions, whereas other policies are widely applied and highly debated. We quantify the effectiveness of climate policies in the form of pricing carbon and subsidizing renewable energies for Germany's and Britain's power sectors. While Germany relies on heavy subsidies for renewables but on a weak price for carbon certificates (EUA) from the EU Emission Trading System (ETS), its emissions hardly declined. To underpin the low EUA price, Britain introduced a unilateral tax on power sector emissions, the Carbon Price Support (CPS). Within only five years, carbon emissions declined by 55%. Our results demonstrate that in the power sector, even a modest carbon price (∼€30/tCO2) can induce significant abatement at low costs within a short period as long as “cleaner” gas plants exist to replace “dirty” coal plants. We also find that carbon pricing is superior to subsidizing wind or solar power in these two countries.

Public support for carbon taxation in Turkey: drivers and barriers

ABSTRACT The Paris Agreement aims to limit the increase in the global mean temperature to well below 2°C to avoid the severe impacts of climate change. To achieve this target, mitigation efforts in emerging economies through carbon pricing are critical, as they are cost effective and generate revenue. However, carbon pricing policies may not be politically feasible owing to low levels of public support. Therefore, investigation of the factors that affect public support for carbon pricing is crucial. Through a face-to-face survey of a representative sample of the Turkish population, we provide evidence for the drivers of, and barriers to, public support for one form of carbon pricing, that is, a potential carbon taxation. Our results suggest that there are numerous factors influencing support for carbon taxation. Among these, awareness of global warming, the perception of the effectiveness of carbon taxation, and carbon taxation adopted by other countries are the most important factors in terms of their marginal effect on support for the policy. If people have heard about global warming, they are more likely to support carbon taxation. The perception that carbon taxation is an effective policy to address climate change leads to increased public support. Moreover, the presence of carbon taxation in other countries positively influences support. However, an unanticipated result is that the use of carbon taxation revenues for mitigation and adaptation projects is not a statistically significant factor influencing public support. The reason for this may be the perception of the effectiveness of carbon taxation. Key policy insights The perception that carbon taxation is an effective policy for decreasing the use of energy and addressing climate change increases public support for the policy. Concerns about global air pollution and climate change make the public more supportive of carbon taxation. The implementation of carbon taxation by other countries leads to greater public support for such a policy. However, concerns related to competitiveness and the regressive nature of carbon taxation negatively affect support. In contrast with the literature, an interesting finding is that the use of taxation revenues for mitigation and adaptation projects has no statistically significant impact on support.

Revenue use and public support for a carbon tax

Many experts see carbon pricing as an effective way to reduce emissions of greenhouses gases; however, political and public support for carbon pricing has faltered. Recent research indicates that revenue recycling and policy design options may induce public support for carbon pricing, but does not examine change in support as a result of revenue use or possible heterogeneity in these inducements across partisan groups. Does support for a carbon tax shift significantly once revenue uses are discussed? Do conservatives and Republicans and liberals and Democrats respond to different revenue reuse options when formulating opinions about carbon taxation? This study employs a survey experiment to examine these questions. Key results indicate that support shifts are largest when the revenue would be refunded and conservatives and Republicans are responsive to different revenue usage options. Specifically, conservatives and Republicans are more supportive of a carbon tax when revenues go towards a tax rebate or deficit reduction. While the differences are relatively small and variable (uncertain), these results provide suggestive insight into the policy design options that may induce a bipartisan basis of public support for carbon taxation policies.

The Impact of a Carbon Tax on the CO2 Emissions Reduction of Wind

Energy policy aims to reduce emissions at least long-run cost while ensuring reliability. Its effecacy depends on the cost of emissions reduced. Britain introduced an additional carbon tax (the Carbon Price Support, CPS) for fuels used to generate electricity that by 2015 added ꌘ/t CO2, dramatically reducing the coal share from 41% in 2013 to 6% in 2018. Policies have both short and long-run impacts. Both need to be estimated to measure carbon savings. The paper shows how to measure the Marginal Displacement Factor (MDF, tonnes CO2/MWh) for wind. The short-run (SR) MDF is estimated econometrically while the long-run (LR) MDF is calculated from a unit commitment model of the GB system in 2015. We examine counter-factual fuel and carbon price scenarios. The CPS lowered the SR-MDF by 7% in 2015 but raised the LR-MDF (for a 25% increase in wind capacity) by 18%. We discuss reasons for the modest differences in the SR- and LR-MDFs.

Policy perspective:Building political support for carbon pricing—Lessons from cap-and-trade policies

How can governments build political support for carbon pricing? This question has challenged policy designers since the earliest programs imposing new prices on pollution, and remains a vital question today. This perspective offers insights on strategies for building greater political support for carbon pricing, based on previous experiences with long-running “auction and invest” programs in the U.S. and abroad, including the Regional Greenhouse Gas Initiative (RGGI), California's carbon pricing system, and the EU emissions trading system (ETS). Three key insights can be derived from those experiences. First: cap and trade with an auction of allowances is an important option for carbon pricing with distinctive advantages. Second, it is important to generate tangible public benefits from a carbon price that are distributed among citizens in a way that is broadly perceived as fair and addresses potential concerns about higher consumer costs for energy. Third, the most effective form of those public benefits should vary predictably across a few clearly defined categories according to local circumstances.

Behavioural Economics and Public Support for Carbon Pricing: A Revenue Recycling Scheme to Address the Political Economy of Carbon Taxation

Even though carbon pricing is widely accepted as the most efficient policy instrument for climate change mitigation, it has been severely held back by a lack of public support. Building on research in behavioural sciences, we propose a revenue recycling scheme that aims to foster public support for carbon taxes. The scheme has two main strengths: (i) it may allow the implementatin of carbon taxes with higher tax rates than those currently prevailing in most jurisdictions; (ii) it relies on a number of accessible technologies, and thus it can be implemented in a wide variety of settings, both in urban and rural areas of developing and developed countries.

Tipping the balance: lessons on building support for carbon pricing

Tipping the balance: lessons on building support for carbon pricing

Book Review: Business in a changing climate: Explaining industry support for carbon pricing

Book Review: Business in a changing climate: Explaining industry support for carbon pricing

Empirical calibration of climate policy using corporate solvency: a case study of the UK’s carbon price support

ABSTRACTEmission reductions improve the chances that dangerous anthropogenic climate change will be averted, but could also cause some firms financial distress. Corporate failures, especially if they are unnecessary, add to the social cost of abatement. Social value can be permanently destroyed by the dissolution of organizational capital, deadweight losses paid to liquidators, and unemployment. This article proposes using measures of corporate solvency as an objective tool for policy makers to calibrate the optimal stringency of climate change policies, so that they can deliver the least loss of corporate solvency for a given level of emission reductions. They could also be used to determine the generosity of any compensation to address losses to corporate solvency. We demonstrate this approach using a case study of the UK’s Carbon Price Support (a carbon tax).Key policy insightsSolvency metrics could be used to empirically calibrate the optimal stringency of climate policies.An idealized solvency trajectory for firms affected by climate change policy would cause corporate solvency to initially decline – approaching but not exceeding ‘distressed’ levels – and then gradually improve to a new ‘steady state’ once the low-carbon transition had been achieved.In terms of the UK’s Carbon Price Support, corporate solvency of energy-intensive industries was found to be stable subsequent to its introduction. Therefore, the available evidence does not support its later weakening.

FRAMEWORKS FOR EVALUATING POLICY APPROACHES TO ADDRESS THE COMPETITIVENESS CONCERNS OF MITIGATING GREENHOUSE GAS EMISSIONS

Domestic carbon pricing policies may impose adverse competitiveness risks on energy-intensive firms competing with foreign firms that may bear a lower carbon price. The risks of competitiveness effects include adverse economic and environmental outcomes, which can undermine political support for carbon pricing. Competitiveness policies, such as border tax adjustments, output-based tax credits, and related policies, also carry potential risks: unfavorable distributional outcomes, less cost-effective, and harming international trade and climate negotiations. This paper reviews the theoretical and empirical research on competitiveness risks and the risks posed by competitiveness policies, and presents two alternative frameworks for evaluating competitiveness policy options.

Carbon pricing in the EU: Evaluation of different EU ETS reform options

This paper studies various options to support allowance prices in the EU Emissions Trading System (ETS), such as adjusting the cap, an auction reserve price, and fixed and variable carbon taxes in addition to the EU ETS. We use a dynamic computable general equilibrium model that explicitly allows for allowance banking and for a detailed cost-effectiveness analysis at the EU Member State level. We find that tightening the cap provides an ad hoc solution to the fundamental issue of the robustness of the effective carbon price, while introducing a price component to the ETS brings structural carbon price support in times of negative demand shocks for emission allowances. These price-based policies still benefit from the intertemporal flexibility through the banking provision in the EU ETS by re-allocating emissions over time with stronger emission reductions in early years and emission increases in later years. A higher emission price has a larger negative impact on the new Member States' economies than on other Member States. Furthermore, introducing a carbon tax in addition to the EU ETS decreases the price of allowances, resulting in welfare gains for net buyers of allowances while net sellers are worse off.

Frameworks for Evaluating Policy Approaches to Address the Competitiveness Concerns of Mitigating Greenhouse Gas Emissions

Domestic carbon pricing policies may impose adverse competitiveness risks on energy-intensive firms and industries competing with foreign firms that may bear a lower or zero price on carbon. The risks of competitiveness effects include adverse economic outcomes — reduced production, lower employment, and higher net imports — and adverse environmental outcomes, with the shifting of emissions-intensive activities to unregulated foreign markets. Each can undermine political support for carbon pricing. Competitiveness policies, such as border tax adjustments, output-based tax credits, and related policies, also carry potential risks. They may result in less favorable distributional outcomes, undermine cost-effectiveness and economic efficiency, and raise risks in international trade and multilateral climate negotiations. This paper reviews the theoretical and empirical research on competitiveness risks, as well as the risks posed by competitiveness policies, and presents two alternative frameworks through which policymakers can weigh these various risks when evaluating policy options for addressing potential competitiveness effects as a part of a domestic carbon pricing regime.