How to Talk to a Populist About Climate Change

In April, the World Bank will host its fourth high-level assembly on carbon pricing. The annual event—attended by government ministers, heads of international organizations, and central bankers—is designed to promote carbon taxes and emissions trading schemes around the world, but particularly to developing countries. The event, and others like it, reflect the conventional wisdom among economists and policymakers that carbon pricing is the most efficient and effective way to reduce greenhouse gas emissions.

Their faith in carbon pricing is well placed. Decades of sophisticated economics literature back them up. The logic is simple. No one—from individuals to businesses and governments—accounts for the future costs associated with climate change, such as the physical damage to infrastructure from increasing flooding or productivity losses from rising temperatures. In economics, such uncounted expenses are known as negative externalities. If not paid for today, future generations will have to bear their burden.

Carbon pricing policies are supposed to internalize climate-related costs to ensure that everyone pays today for the future impact of their emissions. Provided the price of carbon is high enough, economic actors should want to seek ways to use less of it. Structured in the right way, carbon pricing policies could also provide governments with a source of additional revenue. What’s not to like?

Quite a lot, it turns out. Despite their promise to bring in more government revenue and lower emissions, governments around the world are not adopting carbon pricing policies as quickly as needed. One hundred countries pledged to introduce such measures as part of the Paris Agreement on climate change, and 46 national governments and 24 subnational governments have a carbon pricing policy in place or plan to pursue one. While ambition remains high, the implementation of actual policies remains incomplete. A mere 20 percent of global emissions are currently subject to some form of carbon pricing scheme. And it is unclear how effective those efforts will be. Few of the nations that have rolled out pricing mechanisms have been able to price emissions high enough to help the countries to meet their Paris Agreement goals by the target date.

The reason for the slow uptake is that emissions schemes clash with the incentive structures that guide politicians in many political systems. Carbon pricing imposes short-term costs on wide swathes of the (voting) public, for a diffuse, abstract future benefit: a more habitable earth several decades from now. It is always hard to convince the public to bear costs today for benefits tomorrow, but even more challenging is that carbon pricing policies often align the public and affected industry groups together in opposition to the government. The attempt by French President Emmanuel Macron to introduce a carbon tax on fuel, and the ensuing gilets jaunes protests, is instructive. The French government met staunch resistance when it became clear that the carbon tax revenues would be used in part to meet a budget deficit associated with Macron’s income tax cuts for the wealthy. The consequence has been an ongoing outcry against the Macron administration.

If the political dynamics of carbon pricing are challenging for electoral democracies led by centrist leaders like Macron, they are nearly impossible for populist regimes. Populist leaders, although the category is hard to define, generally promote policies that provide short-term benefits for their base but may not be in the long-term interest of their countries. They tend to be anti-elitist and oriented towards domestic rather than international policy issues. Finally, populists tap into concerns about a loss of social and economic status. These dynamics make it particularly hard to impose costs on the public at large for a global environmental good.

About 30 percent of emissions come from countries led by populist leaders.

According to estimates based on World Resources Institute global greenhouse-gas emissions data, about 30 percent of emissions come from countries led by populist leaders. That makes some sense: Populists are particularly prevalent in large and growing middle-income countries such as Brazil, India, Indonesia, Mexico, and the Philippines. Over the next two decades, most of the world’s energy demand and emissions growth is likely to come from those places.

Several populist-led middle-income countries are developing emission-reducing plans using carbon pricing. But they’ll likely have trouble making much progress. Within these countries, carbon pricing policies tend to be driven by international donors and nongovernmental organizations working with domestic policymaking elites. Turkey, Indonesia, and Mexico, for example, have all received financial and technical support from multilateral donors and NGOs to develop their carbon pricing policies.

For populists, the fact that such policies are driven by international organizations makes them particularly unappealing. Further, by focusing on the abstract concept of carbon, not on more tangible economic-development issues, pursuing carbon pricing mechanisms can further alienate leaders from their base. This is particularly true in developing countries, where widespread poverty places economic development above all other issues. When these governments do pursue carbon pricing policies, it is generally because they are tied to other economic development and foreign-policy objectives.

To see how this works, look to Mexico, which introduced a carbon tax in 2014 and a pilot emissions trading scheme this year. The new president, Andrés Manuel López Obrador, is a populist. He has said he will honor the carbon pricing policies he inherited from his predecessor, which were introduced with the support of the World Bank and other international actors and have allowed Mexico to craft an image as an environmentalist leader among its middle-income peers. Yet progress on Mexico’s emissions trading scheme has effectively stalled since López Obrador took office. It is proving a contentious issue for the populist government, which won popular support because of its promise to ease fuel taxes and boost the country’s oil production.

All carbon pricing policies are, of course, not equal. And they can be structured to better address the concerns of populist leaders. For instance, revenues raised by these mechanisms might be recycled to minimize any direct impact on the public. For instance, the revenue might go toward offsetting any increase in household costs. Any extra money could pay for programs the public likes, such as infrastructure or job retraining. However, in order to get that cash, populists would need to introduce carbon pricing policies in the first place, something that the Mexican and other cases suggest may be difficult.

There are other emissions-reduction policy options that may be more palatable to populists in the developing world. One approach that could work particularly well is to encourage countries to manage climate change through state-owned firms. State-owned firms remain large and important actors in the global economy, particularly in developing countries. They also happen to be tightly linked to global climate change. For instance, state firms control most of the world’s oil and gas, and a substantial portion of its coal.

As a starting point, policymakers might work with or direct state-owned electricity generators to adopt clean energy or carbon-capturing technologies. These measures could help advance broadly popular objectives other than climate change, such as reducing air pollution and increasing employment opportunities. Governments could additionally encourage state-owned firms to better manage climate-related financial risks, such as the potential costs of holding unused fossil-fuel assets as energy markets change. On account of the risks that climate change could cause to financial stability and firm performance, corporate regulators and investors in private firms have taken considerable policy steps to try and manage this issue. A similar focus could be directed toward state-owned firms. Finally, policymakers could change government procurement rules to incentivize using more carbon-neutral technologies and products.

Such state-led measures have several advantages over carbon pricing. For starters, governments already have authority to regulate these firms and could require them to better consider public welfare when they make decisions. Further, tightening the screws on state firms imposes no direct costs on a given populist’s base. Meanwhile, by concentrating on issues with mass appeal—such as clean air or financial stability—this approach may better align climate policy to the economic welfare issues that have helped populists get elected in the first place.

Focusing on state-owned businesses may not have the economy-wide impact of carbon pricing. But, with populist leadership on the rise, approaches that they can stomach might be the best we can do.