The role of rebates in public support for carbon taxes

Abstract

Economists advocate carbon pricing as the primary tool to reduce greenhouse gas emissions. However, very few governments have adopted a carbon tax high enough to meet international emission targets. Political challenges may stem from a number of areas, including political mobilization by policy opponents, consumers’ willingness to pay and the regressivity of many carbon pricing schemes, which might be addressed through rebates. We use a novel carbon tax calculator to provide residents in the US and Switzerland with personalized estimates of the financial costs and benefits associated with carbon pricing policies. Our results indicate that, absent political messaging, rebates increase public support for carbon taxes in both countries by building support among lower income groups. In the US, we find majority support in our sample for both low ($50/tCO2) and high ($230/tCO2) carbon taxes when rebates are included; in Switzerland public support is lower. However, policy is always politicized, and when respondents are exposed to political messages about carbon pricing the effects associated with rebates are dampened or eliminated.