Samuel Fankhauser on Carbon Taxation Strategies - Dictionary of Arguments

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Carbon taxation: A carbon tax is a fee imposed on the burning of fossil fuels based on the amount of carbon dioxide they emit. It aims to reduce greenhouse gas emissions by making polluters pay for the environmental cost, encouraging businesses and individuals to shift toward cleaner energy sources. See also Taxation, Corbon pricing, Emission permits, Emissions trading, Emissions. _____________ Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments.

> Fankhauser, Samuel	> Carbon Taxation Strategies	Samuel Fankhauser on Carbon Taxation Strategies - Dictionary of Arguments Fankhauser I 6 Carbon Taxation Strategies /Carattini/Carvalho/Fankhauser: Another defining feature of a carbon tax is how its revenues are proposed to be spent. The literature has explored three revenue recycling strategies in particular: the earmarking of revenues to support emission reduction projects, the redistribution of revenues to achieve a fairer (less fiscally regressive) outcome, and the reduction of other taxes to achieve a revenue-neutral outcome. Using tax revenues for additional emissions reduction reassures voters that the tax will be effective and the environmental objective will be met (Baranzini & Carattini, 2017⁽¹⁾; Kallbekken et al., 2011⁽²⁾; Sælen & Kallbekken, 2011⁽³⁾). 1. Earmarking proceeds: The attractiveness of earmarking carbon tax revenues has been established in a range of contexts (cf. Baranzini & Carattini, 2017⁽¹⁾; Beuermann & Santarius, 2006(4); Bristow, Wardman, Zannia, & Chintakayalab, 2010⁽⁵⁾; Carattini et al., 2017⁽⁶⁾; Clinch & Dunne, 2006⁽⁷⁾; Deroubaix & Lévèque, 2006⁽⁸⁾; Dresner, Jackson, & Gilbert, 2006(9); Gevrek & Uyduranoglu, 2015⁽¹⁰⁾; Kallbekken & Aasen, 2010(11); Kallbekken & Sælen, 2011⁽³⁾; Klok et al., 2006⁽¹²⁾; Thalmann, 2004⁽¹³⁾). The interest in earmarking reflects two voter concerns. The first is a lack of trust in government [.] The second concern is doubt about the effectiveness of carbon taxes (…). Earmarking signals to the public that efforts are being made to make low-carbon options both technologically and commercially more viable and so will reduce the personal cost of changing behavior (Kallbekken & Aasen, 2010)⁽¹¹⁾. Earmarking is also seen as a potential solution to a perceived underinvestment in low-carbon research and development. It should, however, be noted that earmarking revenues for environmental purposes may not be a universal solution. A Swedish survey conducted by Jagers and Hammar (2009)(14) showed that respondents were unwilling to increase carbon tax rates, as they felt the carbon taxes they paid on transport fuels were high enough already. Respondents preferred alternative Fankhauser I 7 such as decreasing taxes on clean energy sources, expanding public transport, and increasing information campaigns about vehicles' contribution to climate change. Additional evidence suggests that preferences for revenue recycling may be context dependent. Carattini et al. (2017)⁽⁶⁾ found that providing information about the environmental effectiveness of different carbon tax designs reduces the preference for environmental earmarking. 2. Compensating low-income households: Several strategies have been put forward in the literature to address potential adverse distributional effects of a carbon tax, including in the influential perspectives of Speck (1999)⁽¹⁵⁾, Baranzini, Goldemberg, and Speck (2000)⁽¹⁶⁾, and Metcalf (2009)⁽¹⁷⁾. [There are two main options on compensation:] compensation via lump-sum transfers and social cushioning. Fankhauser I 8 (…) when there is a clear trade-off in the use of revenues between environmental earmarking and socially progressive redistribution forms, people tend to prefer to use revenues for environmental earmarking (Baranzini & Carattini, 2017⁽¹⁾; Sælen & Kallbekken, 2011⁽³⁾). In the study by Carattini et al. (2017)⁽⁶⁾, the most favored options for using revenue were redistribution through lump-sum transfers, and social cushioning. 3. Cutting other taxes and secur[ing …] full or partial revenue neutrality: Empirical studies show that cutting other taxes is the least popular redistribution strategy among the public (Beuermann & Santarius, 2006⁽⁴⁾; Dresner, Jackson, & Gilbert, 2006⁽⁹⁾; Klok et al., 2006⁽¹²⁾; Thalmann, 2004⁽¹³⁾). This is in contrast to many economists, for whom using tax revenues to reduce distortionary taxes is the ideal solution. By using carbon tax revenues levied on “bads,” such as greenhouse gas emissions, to reduce distortionary taxes on labor, profits, or consumption, which discourage desirable activities, one can hope to achieve higher economic output on top of emissions abatement, and so obtain a “double dividend” (cf. Goulder, 1995)⁽¹⁸⁾. One reason for public opposition is that voters do not necessarily buy into the logic behind the double dividend. They perceive these to be separate problems requiring separate solutions. Another reason for public opposition is a lack of trust in politicians and fiscal authorities (Hammar & Jagers, 2006)(19). Once the policy is implemented, governments could use information devices to increase the visibility of the tax shift. Compensation can be made visible by displaying the amount of income that is rebated on payslips, tax slips, or in contributions to social insurance (Clinch, Dunne, & Dresner, 2006⁽²⁰⁾; Dresner, Dunne, et al., 2006⁽²¹⁾; Hsu et al. 2008⁽²²⁾). Below we [Carattini, Carvalho, Fankhauser] offer some concrete design options that appear particularly promising to increase public support. Fankhauser I 9 1. Phasing in carbon taxes over time: By phasing in carbon taxes gradually, policymakers can take advantage of the fact that aversion tends to abate once people have experienced a policy. A slow ramp-up, or even a trial period, provides individuals with the opportunity to gauge the costs and benefits of the tax. Taxes can then be raised progressively until they reach the level required to meet the environmental objective. Note that this may imply renouncing to allowing the carbon tax rate to fluctuate depending on the business cycle, although this type of flexibility might be welfare improving (cf. Doda, 2016)(23). The risk with this strategy is that carbon taxes may be frozen at a level that is not sufficient to achieve their intended objectives. There are two potential, and complementary, solutions to overcome this risk. The first solution relies on societal learning. The second solution uses commitment devices. 2. Earmarking tax revenues for additional climate change mitigation: Voters have a preference for earmarking tax revenues and using the proceeds for additional greenhouse gas emissions reductions. They are particularly keen on support for low-carbon research and development, along with subsidies to promote deployment. The demand for environmental earmarking may decrease over time as people observe the impact of the tax and update their beliefs. Governments can again support this process by providing effective information about emissions trends, the distributional effects of the tax, and any ancillary benefits. Revenues may then be freed up gradually to address other sources of voter aversion, or to obtain economic gains. Tapering the degree of earmarking can also allay a government's concerns about fiscal management. 3. Redistributing taxes to improve fairness: Carbon taxes can be made more acceptable if tax revenues are used to address important societal concerns. Fankhauser I 10 While the objective of a carbon tax is to address the climate externality, and not to address the issue of raising inequalities, there may still be the expectation that carbon taxes are designed in a way that at least does not lead to a more unequal distribution. Carbon taxes can be designed to be both revenue neutral and progressive through lump-sum transfers and social cushioning measures to reduce costs for low-income households. Some voters may, however, be suspicious about a government's long-term commitment to redistribution. To allay those fears, governments can use commitment devices, such as explicit plans on how revenues are to be redistributed. 4. Information sharing and communication: A final suggestion applies to all efforts to implement a carbon tax, regardless of the use of revenues, or level of stringency. As soon as policymakers start considering the design of a carbon tax, they should provide detailed information (obtained through analysis and perhaps model simulations) to navigate the process of public consultations and to pre-emptively address voter concerns. This disclosure would ideally occur before voters are called to a ballot, or before lawmakers consider a carbon tax bill in the parliament. Fankhauser I 11 Communication efforts need to continue once the policy is implemented. Because the effects of carbon taxes are often not visible, governments are encouraged to measure their effects regularly and inform their citizens about them transparently. Communication strategies may need to be adapted to the beliefs and worldviews of the targeted population (Cherry et al., 2017)⁽²⁴⁾, and also take into account the potential implications of political polarization and bipartisan divides (Hart & Nisbet, 2012⁽²⁵⁾; Kahan et al., 2011⁽²⁶⁾). >Emission permits, >Emission reduction credits, >Emission targets, >Emissions, >Emissions trading, >Climate change, >Climate damage, >Energy policy, >Clean Energy Standards, >Climate data, >Climate history, >Climate justice, >Climate periods, >Climate targets, >Climate impact research, >Carbon price, >Carbon price coordination, >Carbon price strategies, >Carbon tax, >Carbon tax strategies. 1. Baranzini, A., & Carattini, S. (2017). Effectiveness, earmarking and labeling: Testing the acceptability of carbon taxes with survey data. Environmental Economics and Policy Studies, 19(1), 197–227. 2. Kallbekken, S., Kroll, S., & Cherry, T. L. (2011). Do you not like Pigou, or do you not understand him? Tax aversion and revenue recycling in the lab. Journal of Environmental Economics and Management, 62(1), 53–64. 3. Sælen, H., & Kallbekken, S. (2011). A choice experiment on fuel taxation and earmarking in Norway. Ecological Economics, 70(11), 2181–2190. 4. Beuermann, C., & Santarius, T. (2006). Ecological tax reform in Germany: Handling two hot potatoes at the same time. Energy Policy, 34(8), 917–929. 5. Bristow, A. L., Wardman, M., Zannia, A. M., & Chintakayalab, P. K. (2010). Public acceptability of personal carbon trading and carbon tax. Ecological Economics, 69(9), 1824–1837. 6. Carattini, S., Baranzini, A., Thalmann, P., Varone, P., & Vöhringer, F. (2017). Green taxes in a post-Paris world: Are millions of nays inevitable? Environmental and Resource Economics, 68(1), 97–128. 7. Clinch, J. P., & Dunne, L. (2006). Environmental tax reform: An assessment of social responses in Ireland. Energy Policy, 34(8), 950–959. 8. Deroubaix, J.-F., & Lévèque, F. (2006). The rise and fall of French ecological tax reform: Social acceptability versus political feasibility in the energy tax implementation process. Energy Policy, 34, 940–949. 9. Dresner, S., Jackson, T., & Gilbert, N. (2006). History and social responses to environmental tax reform in the United Kingdom. Energy Policy, 34(8), 930–939. 10. Gevrek, Z. E., & Uyduranoglu, A. (2015). Public preferences for carbon tax attributes. Ecological Economics, 118, 186–197. 11. Kallbekken, S., & Aasen, M. (2010). The demand for earmarking: Results from a focus group study. Ecological Economics, 69(11), 2183–2190. 12. Klok, J., Larsen, A., Dahl, A., & Hansen, K. (2006). Ecological tax reform in Denmark: History and social acceptability. Energy Policy, 34(8), 905–916. 13. Thalmann, P. (2004). The public acceptance of green taxes: 2 million voters express their opinion. Public Choice, 119, 179–217. 14. Jagers, S. C., & Hammar, H. (2009). Environmental taxation for good and for bad: The efficiency and legitimacy of Sweden's carbon tax. Environmental Politics, 18(2), 218–237. 15. Speck, S. (1999). Energy and carbon taxes and their distributional implications. Energy Policy, 27(11), 659–667. 16. Baranzini, A., Goldemberg, J., & Speck, S. (2000). A future for carbon taxes. Ecological Economics, 32(3), 395–412. 17. Metcalf, G. E. (2009). Designing a carbon tax to reduce U.S. greenhouse gas emissions. Review of Environmental Economics and Policy, 3(1), 63–83. 18. Goulder, L. H. (1995). Environmental taxation and the double dividend: A reader's guide. International Tax and Public Finance, 2(2), 157–183. 19. Hammar, H., & Jagers, S. C. (2006). Can trust in politicians explain individuals' support for climate policy? The case of CO2 tax. Climate Policy, 5(6), 613–625. 20. Clinch, J. P., Dunne, L., & Dresner, S. (2006). Environmental and wider implications of political impediments to environmental tax reform. Energy Policy, 34(8), 960–970. 21. Dresner, S., Dunne, L., Clinch, P., & Beuermann, C. (2006). Social and political responses to ecological tax reform in Europe: An introduction to the special issue. Energy Policy, 34(8), 895–904. 22. Hsu, S. L., Walters, J., & Purgas, A. (2008). Pollution tax heuristics: An empirical study of willingness to pay higher gasoline taxes. Energy Policy, 36(9), 3612–3619. 23. Doda, B. (2016). How to price carbon in good times ... and bad! WIREs Climate Change, 7(1), 135–144. 24. Cherry, T. L., Kallbekken, S., & Kroll, S. (2017). Accepting market failure: Cultural worldviews and the opposition to corrective environmental policies. Journal of Environmental Economics and Management, 85, 193–204. 25. Hart, P. S., & Nisbet, E. C. (2012). Boomerang effects in science communication: How motivated reasoning and identity cues amplify opinion polarization about climate mitigation policies. Communication Research, 39(6), 701–723. 26. Kahan, D., Wittlin, M., Peters, E., Slovic, P., Ouellette, L., Braman, D., & Mandel, G. (2011). The tragedy of the risk-perception commons: Culture conflict, rationality conflict, and climate change (SSRN Scholarly Paper). Rochester, NY: Social Science Research Network. Stefano Carattini, Maria Carvalho & Sam Fankhauser, 2018: “Overcoming public resistance to carbon taxes”. In: Stéphane Hallegatte, Mike Hulme (Eds.), WIREs Climate Change, Vol. 9/5, pages 1-26. _____________ Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition.	Fankhauser I Samuel Fankhauser Stefano Carattini Maria Carvalho, Overcoming public resistance to carbon taxes 2018

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