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Motivated Reasoning and Implicit Carbon Prices: Overcoming Public Opposition to Carbon Taxes and Emissions Trading Schemes

Published online by Cambridge University Press:  18 November 2020

Goran DOMINIONI Open the ORCID record for Goran DOMINIONI [Opens in a new window]
Goran DOMINIONI*
Affiliation:
Assistant Professor in Law, School of Law and Government, Dublin City University, Dublin, Ireland; email: [email protected].
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Abstract

Analysts agree that public opposition is one of the main factors that hinder ambition in many countries’ carbon pricing policy agenda. This article argues that motivated reasoning contributes to this opposition by inducing the public to underestimate the effectiveness of carbon pricing to mitigate climate change and yield co-benefits. This article also argues that measures of implicit carbon pricing can help overcome public opposition to carbon taxes and emissions trading schemes due to motivated reasoning. These measures are becoming increasingly available thanks to recent work by the International Monetary Fund, the Organisation for Economic Co-operation and Development and private-sector actors, and therefore they offer a potential instrument for reducing public opposition to carbon taxes and emissions trading schemes in various countries. A strength of the approach proposed in this article – compared to some of the mainstream approaches to risk regulation – is that it tries is to keep the regulation of climate risks in line with public attitudes towards these risks.

Type
Articles
Information
European Journal of Risk Regulation , Volume 13 , Issue 1 , March 2022 , pp. 158 - 173
Copyright
© The Author(s), 2020. Published by Cambridge University Press

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Footnotes

I thank Patricia Cruz Marin, Dan Esty, Christine Jolls and the participants of the Work in Progress Symposium at Yale Law School for their feedback and comments on an earlier version of this paper. I also thank Dan Kahan and Tom Tyler for useful discussion. The usual disclaimer applies.

References

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2 Recently, many economists, including twenty-seven Nobel Laureate Economists, four former chairs of the US Federal Reserve and two former secretaries of the US Department of Treasury have signed a statement supporting the introduction of a US carbon tax: see <https://www.econstatement.org/>. See also CPLC, “Report of the High-Level Commission on Carbon Prices” (2017); IPCC, “Mitigation Pathways Compatible with 1.5°C in The Context of Sustainable Development” (2018); IMF, “Fiscal Policies for Paris Climate Strategies-From Principle to Practice” (2019).

3 <https://carbonpricingdashboard.worldbank.org/map_data>.

4 G Dominioni and D Heine, “Behavioural Economics and Public Support For Carbon Pricing: A Revenue Recycling Scheme To Address The Political Economy of Carbon Taxation” (2019) 19 European Journal of Risk Regulation 554; World Bank, “State and Trends of Carbon Pricing 2019” (2019).

5 A Baranzini and S Carattini, “Effectiveness, Earmarking and Labeling: Testing the Acceptability of Carbon Taxes with Survey Data” (2017) 19 Environmental Economics and Policy Studies 197; S Carattini, M Carvalho and S Fankhauser, “Overcoming Public Resistance to Carbon Taxes” (2018) 9 Wiley Interdisciplinary Reviews: Climate Change e531; World Bank, supra, note 4; IMF, supra, note 2.

6 S Dresner et al, “Social and Political Responses to Ecological Tax Reform in Europe: An Introduction to the Special Issue” (2006) 34 Energy Policy 895; Carattini et al, supra, note 5.

7 On the effect of carbon taxes at reducing carbon emissions, see JJ Andersson, “Carbon Taxes and CO2 Emissions: Sweden as a Case Study” (2019) 11 American Economic Journal: Economic Policy 1; B Murray and N Rivers, “British Columbia’s Revenue-Neutral Carbon Tax: A Review of the Latest ‘Grand Experiment’ in Environmental Policy” (2015) 86 Energy Policy 674. On the air quality benefits in the USA, see TM Thompson et al, “A Systems Approach to Evaluating the Air Quality Co-Benefits of US Carbon Policies” (2014) 4 Nature Climate Change 917; JJ Buonocore et al, “Climate, Air Quality, and Health Benefits of a Carbon Fee-and-Rebate Bill in Massachusetts, USA” (2018) 13 Environmental Research Letters 114014. On the air quality benefits in China, see M Li et al, “Co-Benefits Of China’s Climate Policy for Air Quality and Human Health in China and Transboundary Regions in 2030” (2019) 14 Environmental Research Letters 084006.

8 Carattini et al, supra, note 5.

9 GM Lucas Jr, “Voter Psychology and the Carbon Tax” (2017) 90 Temple Law Review 1.

10 I refer here exclusively to reforms to subsidies to fossil fuel consumption, not to production. See also World Bank, supra, note 4.

11 OECD, “Effective Carbon Rates: Pricing CO2 through Taxes and Emissions Trading Systems” (2016); OECD, “Effective Carbon Rates 2018: Pricing Carbon Emissions through Taxes and Emissions Trading” (2018); IMF, supra, note 2.

12 VividEconomics and the Overseas Development Institute, “Estimating Effective Carbon Prices: Accounting for Fossil Fuel Subsidies” (2019).

13 World Bank, supra, note 4; IMF, supra, note 2; MA Pigato, Fiscal Policies for Development and Climate Action (Washington, DC, World Bank 2019).

14 PMR-CPLC, Guide to Communicating Carbon Pricing (Washington, DC, World Bank 2018).

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16 For an example of this traditional approach to risk regulation, see Breyer, supra, note 15.

17 For a call in favour of this approach that keeps risk regulation aligned with public perception of risks, see Kahan et al, supra, note 15.

18 I Ayres, “Voluntary Taxation and Beyond: The Promise of Social-Contracting Voting Mechanisms” (2017) 19 American Law and Economics Review 1; Carattini et al, supra, note 5; Dominioni and Heine, supra, note 4; Lucas Jr, supra, note 9.

19 D Heine, M Faure and G Dominioni, “The Polluter-Pays Principle in Climate Change Law: An Economic Appraisal” (2020) 10(1) Climate Law 94.

20 Lucas Jr, supra, note 9.

21 To have a sense of how commonly this strategy is used in practice (consciously or not), it is sufficient to look at the evolution throughout time of the levels of carbon prices around the world. These data are available at the following link: <https://carbonpricingdashboard.worldbank.org/map_data>.

22 Carattini et al, supra, note 5.

23 HW Sinn, “Public Policies against Global Warming: A Supply Side Approach” (2008) 15 International Tax and Public Finance 360; F Van Der Ploeg and C Withagen, “Global Warming and the Green Paradox: A Review of Adverse Effects of Climate Policies” (2015) 9 Review of Environmental Economics and Policy 285.

24 Dominioni and Heine, supra, note 4.

25 ibid.

26 ibid.

27 ibid.

28 On the public acceptability of nudges, see C Sunstein, The Ethics of Influence: Government in the Age of Behavioral Science (Cambridge, Cambridge University Press 2016); C Sunstein, “Do People Like Nudges?” (2016) 68 Administrative Law Review 177. Of course, ethical considerations may also recommend not manipulating citizens’ biases; see Lucas Jr, supra, note 9.

29 A Tversky and D Kahneman. “The Framing of Decisions and the Psychology of Choice” (1981) 211(4481) Science 453.

30 Pigato, supra, note 13.

31 ibid.

32 Baranzini and Carattini, supra, note 5; S Kallbekken, S Kroll and TL Cherry, “Do You Not Like Pigou, or Do You Not Understand Him? Tax Aversion and Revenue Recycling in the Lab” (2011) 62 Journal of Environmental Economics and Management 53.

33 <https://www.cga.ct.gov/2018/TOB/h/2018HB-05363-R00-HB.htm>.

34 <https://legiscan.com/MD/text/HB1543/id/2128820>.

35 A popular video shows the Prime Minister of Canada, Justin Trudeau, calling by mistake the carbon pricing scheme “carbon tax” during a parliamentary audition, and members of the opposing parties laugh in response (see <https://www.youtube.com/watch?v=5ndd3YKEBxM>).

36 Lucas Jr, supra, note 9; B Rabe and CP Borick, “Carbon Taxation and Policy Labeling: Experience from American States and Canadian Provinces” (2012) 29 Review of Policy Research 358, 360–80.

37 <https://ballotpedia.org/Washington_Initiative_1631,_Carbon_Emissions_Fee_Measure_(2018)>.

38 Lucas Jr, supra, note 9.

39 ibid.

40 L Summers, “Let This Be the Year When We Put a Proper Tax on Carbon” (Financial Times, 5 January 2015) <http://www.ft.com/content/10cbla60-9277-11e4-alfd-00144feabdcO>.

41 Lucas Jr, supra, note 9.

42 Ayres, supra, note 18.

43 ibid.

44 Andersson, supra, note 7; Murray and Rivers, supra, note 7.

45 Andersson, supra, note 7.

46 Murray and Rivers, supra, note 7.

47 G Bel and S Joseph, “Emission Abatement: Untangling the Impacts of the EU ETS and the Economic Crisis” (2015) 49 Energy Economics 531.

48 BC Murray and PT Maniloff, “Why Have Greenhouse Emissions in RGGI States Declined? An Econometric Attribution to Economic, Energy Market, and Policy Factors” (2015) 51 Energy Economics 581.

49 Thompson et al, supra, note 7.

50 ibid.

51 Buonocore et al, supra, note 7.

52 Li et al, supra, note 7.

53 A Baranzini et al, “Carbon Pricing in Climate Policy: Seven Reasons, Complementary Instruments, and Political Economy Considerations” (2017) 8 Wiley Interdisciplinary Reviews: Climate Change e462.

54 I Parry, C Veung and D Heine, “How Much Carbon Pricing Is in Countries’ Own Interests? The Critical Role of Co-Benefits”, IMF Working Paper (2014).

55 Carattini et al, supra, note 5.

56 J Klok et al, “Ecological Tax Reform in Denmark: History and Social Acceptability” (2006) 34 Energy Policy 905.

57 Baranzini and Carattini, supra, note 5.

58 ibid.

59 ibid.

60 T Douenne and A Fabre, “Yellow Vests, Carbon Tax Aversion, and Biased Beliefs” (2020), working paper.

61 ibid.

62 ibid.

63 Dresner et al, supra, note 5; H Sælen and S Kallbekken, “A Choice Experiment on Fuel Taxation and Earmarking in Norway” (2011) 70 Ecological Economics 2181.

64 D Klenert et al, “Making Carbon Pricing Work for Citizens” (2018) 8 Nature Climate Change 669.

65 PMR, Carbon Revenue Use (Washington, DC, World Bank 2019).

66 S Carattini et al, “Green Taxes in A Post-Paris World: Are Millions of Nays Inevitable?” (2017) 68 Environmental and Resource Economics 97.

67 Carattini, supra, note 5.

68 JN Druckman and MC McGrath, “The Evidence for Motivated Reasoning in Climate Change Preference Formation” (2019) 9 Nature Climate Change 111.

69 B Bénabou and J Tirole, “Mindful Economics: The Production, Consumption, and Value of Beliefs” (2016) 30 Journal of Economic Perspectives 141.

70 D Kahan et al, “The Polarizing Impact of Science Literacy and Numeracy on Perceived Climate Change Risks” (2012) 2(10) Nature Climate Change 732.

71 Lucas Jr, supra, note 9.

72 Carattini et al, supra, note 5.

73 Douenne and Fabre, supra, note 60.

74 P Thalmann, “The Public Acceptance of Green Taxes: 2 Million Voters Express Their Opinion” (2004) 119 Public Choice 179.

75 Z Kunda, “The Case for Motivated Reasoning” (1990) 108 Psychological Bulletin 480.

76 Douenne and Fabre, supra, note 60.

77 Pigato, supra, note 12.

78 JD Jenkins, “Political Economy Constraints on Carbon Pricing Policies: What Are the Implications for Economic Efficiency, Environmental Efficacy, and Climate Policy Design?” (2014) 69 Energy Policy 467.

79 PMR, supra, note 65.

80 Evidence of this “prior attitude effect” outside of the context of climate change is provided in CG Lord, L Ross and MR Lepper, “Biased Assimilation and Attitude Polarization: The Effects of Prior Theories on Subsequently Considered Evidence” (1979) 37 Journal of Personality and Social Psychology 2098. For a discussion of the prior attitude effect in the context of climate change communication, see Druckman and McGrath, supra, note 68.

81 Lucas Jr, supra, note 9.

82 M Feinberg and R Willer, “The Moral Roots of Environmental Attitudes” (2013) 24 Psychological Science 56.

83 RK Garrett, “Strategies for Countering False Information and Beliefs about Climate Change” in Oxford Research Encyclopedia of Climate Science (2017).

84 D Kahan, “Ideology, Motivated Reasoning, and Cognitive Reflection: An Experimental Study” (2013) 8 Judgment and Decision Making 407.

85 TL Cherry, S Kallbekken and S Kroll, “Accepting Market Failure: Cultural Worldviews and the Opposition to Corrective Environmental Policies” (2017) 85 Journal of Environmental Economics and Management 193.

86 Notice that, in some countries, public opposition to fuel subsidy reforms might be more politically contentious than carbon taxes and ETSs. For instance, in 2017, protests erupted in Mexico against a sharp cut in fossil fuel subsidies; see D Agren, “Mexico Protests: How Gas Prices Lit the Flame Under a Quietly Smoldering Rage” (The Guardian, 9 January 2017) <https://www.theguardian.com/world/2017/jan/09/mexico-gasoline-price-protest-gasolinazo>.

87 D Kahan et al, “The Polarizing Impact of Science Literacy and Numeracy on Perceived Climate Change Risks” (2012) 2 Nature Climate Change 732.

88 D Kahan et al, “Geoengineering and Climate Change Polarization: Testing a Two-Channel Model of Science Communication” (2015) 658 Annals of the American Academy of Political and Social Science 192.

89 Some research suggests that reducing taxes on capital can deliver a double dividend: increased economic activity and reduced pollution. See LH Goulder, “Environmental Taxation and the Double Dividend: A Reader’s Guide” (1995) 2 International Tax and Public Finance 157.

90 Kahan et al, supra, note 88.

91 ibid.

92 D Kahan, “Fixing the Communications Failure” (2010) 463 Nature 296.

93 IMF, supra, note 2.

94 E Ostrom, “Polycentric Systems for Coping with Collective Action and Global Environmental Change” (2010) 20 Global Environmental Change 550; S Carattini, S Levin and A Tavoni, “Cooperation in the Climate Commons” (2019) 13 Review of Environmental Economics and Policy 227.

95 ibid.

96 I Ayres, S Raseman and A Shih, “Evidence from Two Large Field Experiments That Peer Comparison Feedback Can Reduce Residential Energy Usage” (2013) 29 Journal of Law, Economics, and Organization 992; Carattini et al, supra, note 94; J Rode and A Weber, “Does Localized Imitation Drive Technology Adoption? A Case Study on Rooftop Photovoltaic Systems in Germany” (2016) 78 Journal of Environmental Economics and Management 38.

97 Lucas Jr, supra, note 9.

98 Ayres, supra, note 18; Carattini et al, supra, note 5; Dominioni and Heine, supra, note 4; Lucas Jr, supra, note 9.

99 Heine et al, 2020, supra, note 19.

100 Kahan et al, supra, note 15.