By Ed Dolan

Despite widespread support among economists of all political persuasions, polling shows that public attitudes toward a carbon tax are lukewarm, at best. A Hill+Knowlton survey finds that although 81 percent of Americans respond positively when asked if they favor government action to limit carbon emissions, support falls to 56 percent when they are asked whether they favor a carbon tax.

A recent YouGov Blue poll provides some insight into the thinking of those who favor climate action but oppose a tax. Instead of asking a yes/no question, it asks separately about a carbon tax and an alternative policy based on subsidies and regulation.

“Would you support or oppose levying a new tax on carbon pollution to reduce pollution and protect the environment?”

“Would you support or oppose a policy providing for public investment in clean energy infrastructure and requiring carbon emissions reductions through regulation to reduce pollution and protect the environment?”

A comparison of responses to the two questions gives a fuller picture of public attitudes toward the two policy approaches. The investment/regulation question draws 59 percent affirmative responses, compared to only 50 percent who answer affirmatively to the carbon tax question. Negative responses to the carbon tax question outnumber negative responses to the investment/regulation approach by 31 to 25.

Among Democratic respondents, overall support for decarbonizaton is higher, but the gap between the alternatives is wider, with 90 percent of Democrats supporting the investment/regulation approach while just 75 percent favor carbon taxes. Interestingly, Democratic primary candidates seem more cautious about a climate tax than their voters: According to a Politifact analysis of climate policies as stated on campaign websites, only six of the 21 Democratic candidates who participated in the June and July debates offered explicit support for a carbon tax.

In what follows, I will try to address the issues that these and other polling data raise for economists, myself included, who see carbon taxes as obviously the best tool of climate policy. Why is it that so many members of the public are skeptical, even when they strongly favor climate action? How can carbon tax backers improve their communication strategies? At several points, the discussion will draw on a comprehensive review of climate policy opinion by Stefano Carattini, Maria Carvalho, and Sam Fankhauser, “Overcoming Public Resistance to Carbon Taxes,” (Carattini et al.)

“A carbon tax will hurt the poor”

One frequently voiced objection to carbon taxes is the fear that they would hurt the poor. Interestingly, though, in the comprehensive survey of international polling by Carattini et al., this is not the top source of resistance to carbon taxes. As I discussed in an earlier piece on carbon taxes and the poor, there appear to be two reasons for this.

First, the concern that a carbon tax will hurt the poor is less often voiced by those who have real concerns about the future of the planet than by those who do not. It is a favorite makeweight to self-interested arguments made by coal and oil producers and others who benefit from the status quo. They love to warn that a carbon tax would hurt the poor, hurt jobs, hurt growth — all without regard for how much uncontrolled global warming itself would do so.

Second, when voiced sincerely, “It will hurt the poor” is one of the most easily answered objections. Although poor households do spend more on gasoline and electricity as a percentage of their incomes, their incomes are very low. On the whole, most of the burden of a carbon tax would fall on higher-income households. Rebating even a small fraction of tax revenue to the poor would be enough to hold them harmless.

Carattini et al. find that one source of skepticism about carbon taxes and the poor is the fear that government cannot be trusted to keep its promises. Theoretically, as little as 10-20 percent of carbon tax revenue might be enough to compensate the poor, but would that money really be disbursed to those who need it, or would the government impose taxes and then renege on the rebates?

That concern would be addressed if, as some advocates urge, carbon tax legislation were to include a commitment that all of the revenue would be rebated to the public. The carbon-fee-and-dividend proposal from the nonpartisan Citizens’ Climate Lobby is one example. The more conservative Climate Leadership Council makes a similar proposal.

Communications issue: Advocates should emphasize realistic, visible, and binding commitments to enable low-income households to manage the impact of a carbon tax.

“A carbon tax is just a nudge”

The polls summarized in Carattini et al. show that many people doubt the efficacy of a carbon tax. They see such a tax as just a nudge that would have no fundamental effect on behavior.

Economists disagree. Studies universally find that an increase in prices of carbon-based fuels or other carbon-based goods leads to decreases in consumption. The disagreements are not about whether price has an effect on demand for gasoline, electricity, and other carbon-based goods and services, but about how large the effect is and how quickly it operates. The economist’s term for the sensitivity of quantities purchased to changes in price is elasticity of demand. This source provides a good discussion of the technicalities involved in estimating the price elasticities relevant to a carbon tax.

Public skepticism about the effects of carbon taxes may stem in part from a failure to recognize that prices affect demand in many ways. People may think, “Even if gasoline goes up to $5 a gallon, I still have to get to work. The higher price won’t change that, it will just take a big bite out of my paycheck.” However, over time, there are more subtle ways to adjust to higher prices than just staying home from work. Energy prices affect where people live, how compact or sprawled out their cities are, how large their houses are, and how well insulated. They affect technical choices made by manufacturers of cars, air conditioners, refrigerators, and airliners. They affect research efforts of corporations and universities. They affect government choices regarding public transportation and other infrastructure development.

There are thousands of pressure points at which prices affect demand, many of which are invisible to ordinary consumers. When all of them are put together, the relation of prices to consumption can be quite dramatic, as illustrated by the following figure, which shows differences in fuel prices and energy used in transportation in various large economies. Higher prices drive down consumption, as economists expect.

Communication issue: Econometric studies of elasticity are important to economists, but are unlikely to convince many people. Better to look for anecdotal evidence, simple charts, cross-country comparisons, and other easily understood illustrations of the effectiveness of price changes in reducing consumption.

“Marching as to war”

The Green New Deal calls for “a new national, social, industrial, and economic mobilization on a scale not seen since World War II.” This urgent call to arms says nothing about a carbon tax. After all, wartime mobilizations do not rely on relative price changes. They rely on orders given and orders obeyed.

Speaking to the Washington Examiner, Saikat Chakrabarti, then chief of staff for GND architect Alexandria Ocasio-Cortez put it this way: “Carbon pricing is a tiny part of the Green New Deal. … The climate debate should be about how many windmills, solar farms, and electric vehicles we can build.”

That attitude would be all well and good if government officials knew exactly which orders they should issue, but they do not. To take one example, it is fine to say that we need more windmills and solar panels, but just building more will hit diminishing returns without better storage technologies. The problem is, no one knows which kinds of storage can best be scaled up to meet national needs. What one firm can make work may or may not beat out its competitors.

For another example, consider electric cars. Yes, the government can offer tax rebates for purchases of electric cars and could even set quantitative targets for manufacturers. By encouraging high-volume output of electric cars, such subsidies might lead to a reduction in production costs, but they are a costly emissions-reduction tool, in part because the degree to which electric cars reduce emissions varies greatly among regions of the country. Rather than subsidies or regulations that apply nationwide, it would make more sense to use a carbon tax to raise the price of coal-based electricity while keeping green power costs low. Electric car ownership would grow fastest in the regions, especially the West, where it now does the most good. Later, electrics would spread to other areas as the tax induced utilities in the East to switch to cleaner fuels.

Finally, while speaking of cars, consider another point. For many years, the federal government has used CAFE standards to compel automakers to increase average fuel economy. However, those fuel economy standards have an unintended consequence. They make it more likely that you will buy a fuel-efficient car, but for any given price of gasoline, once you buy the fuel-efficient car, you have an incentive to drive it more miles than you drove your old gas guzzler. The “rebound effect” of more miles driven partly cancels out the decarbonization effect of buying the efficient vehicle.

The conclusion here is that even if you leave CAFE standards and similar command-and-control regulations in place, they will work better if you back them up with a carbon tax. Once the effectiveness of a tax became clear, there would be time enough to debate whether the original regulations could be phased out as redundant or modified to enhance the efficacy of the tax.

Communication issue: The analogy between wartime mobilization and climate action is misleading. A better analogy is that of a fair contest in which inventors, investors, and entrepreneurs compete for a prize that goes to whoever finds the most cost-effective way for people to enjoy modern life without contributing to climate change.

Conclusions

Economists are convinced that a carbon tax would be the best policy to fight climate change. We are frustrated when people who should be our natural allies prefer regulations and subsidies that, to us, are obviously less efficient and effective. But perhaps our very focus on efficiency is the explanation for our own ineffectiveness in the broader debate over climate policy.

Perhaps what we need is a better communication strategy. We should recognize that people are as concerned about distributional issues as about efficiency, and perhaps more concerned about politics than economics. We should recognize that we need policies that will be effective, but also policies that can be trusted. And we should be willing to consider second-best policies as a supplement to a carbon tax, or even designs where a carbon tax plays a supporting role. It may be that over time, increasing acceptance of an aggressive climate policy in general will encourage the development of mechanisms that look more and more like a carbon tax.

It is encouraging that Caratini et al. find evidence in the polling data they have collected from around the world that this may be the case. They find evidence that public opposition may not be persistent. Instead, “voter aversion may abate once a policy is implemented, as people become more familiar with the measure and are better able to gauge its costs and benefits.” As circumstances become more favorable, policies can be fine-tuned to best meet environmental goals.