Public acceptability of carbon pricing: unravelling the impact of revenue recycling

ABSTRACT

Carbon pricing has emerged as a prominent policy tool to mitigate climate change due to its proclaimed high efficiency and effectiveness. However, the successful and sustainable implementation of carbon pricing also depends on the public acceptability. This paper investigates how revenue recycling shapes public attitudes towards carbon pricing. A systematic literature review identified 48 relevant studies from 2004 to March 2023. Using qualitative content analysis I discern relevant factors and construct a typology of revenue recycling options. Subsequently, a consensus ordinal ranking of revenue recycling options, based on the empirical findings of the reviewed studies, synthesizes current knowledge. The results reveal that revenue recycling has a crucial impact on public acceptability. While environmental earmarking ranks highest, and reducing corporate taxes is the least preferred option, numerous other revenue recycling options lie between these two options. Moreover, the literature presents divergent findings regarding the level of public acceptability of specific revenue recycling options. The diversity of research contexts and designs introduces inherent limitations that may explain variations in rankings observed across different studies. Notably, I identify political trust related to and salience of revenue recycling as important factors affecting public acceptability of carbon pricing. Finally, this research offers a framework for policymakers seeking to design revenue recycling strategies that align with public preferences to implement carbon pricing.

KEY POLICY INSIGHTS

• Revenue recycling is a critical element of effective carbon pricing mechanisms, as public acceptability depends substantially on how revenues are used.

• The proposed ranking offers a framework for policymakers to design carbon pricing policies. Environmental earmarking is the most preferred way of revenue recycling, but the acceptability of each revenue recycling option also depends on the specific context.

• Designing revenue recycling in line with public preferences can enhance public acceptability of carbon pricing policies, and hence, their implementation.

• Trust, communication and salience of revenue recycling can enhance public acceptability of carbon pricing.

KEYWORDS:

• Public support
• public acceptance
• public preferences
• revenue use
• carbon tax
• emission trading

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 The search query was restricted to the field tag TS (including title, abstract and keywords) for Web of Science and the equivalent field tag TITLE-ABS-KEY for Scopus.

2 Consequently, I exclude pricing mechanism which are not proportional to carbon emissions given a certain product.

3 For example, a fixed tax rate on short-haul and long-haul flights.

4 More specifically, the first 20 search results for each author on Google Scholar were reviewed.

5 Although Dechezleprêtre et al. (2022) is not a journal article, I decided to include this study in this review given the scope, relevance and novelty of this paper in a rapidly developing research domain.

6 The codebook can be consulted in the appendices. The analysis was conducted using the software package NVivo.

7 An overview of the main characteristics of the reviewed studies can be consulted in appendix 1.

8 A recent overview of carbon pricing initiatives around the world can be consulted here: https://carbonpricingdashboard.worldbank.org/map_data.

9 These studies mostly consider fuel taxation (Beiser-McGrath et al., 2021; Kallbekken & Aasen, 2010; Sælen & Kallbekken, 2011) or more specifically gasoline taxation (Fairbrother, 2019; Hsu et al., 2008; Kaplowitz & McCright, 2015).

10 For an extensive review of these concepts, I refer to Kyselá et al. (2019).

11 In this paper earmarking and hypothecation will be used interchangeably, but strictly speaking the two concepts differ: while (legal) earmarking involves binding revenues to expenditures through legislative decision, hypothecation implies only communication of the links between revenues and expenditures without an enforcing legal structure (Steenkamp, 2021). Given that communication on how the revenues will be used is included in the concept of earmarking in this paper, revenue recycling could also be used interchangeably as it encompasses various ways on how revenues will flow back into the economy. However, it is important to note that while revenues could also be earmarked for non-environmental purposes, the literature on public acceptability of carbon pricing often uses earmarking related to environmental purposes, commonly referred to as environmental earmarking.

12 There might also be a risk that earmarking revenues for environmental purposes may lead to ‘preaching to the converted’ – people who are pro-environment, politically more left-oriented, higher educated and have a higher level of political trust – which might evoke polarization between groups in society and will not help to convince people who are opposed to climate action (Sommer et al., 2022).

13 In Konc et al. (2022) progressive recycling reaches the highest public support because high wellbeing and distributional effects were considered. In Carattini et al. (2017), the salience of distributional effects was an important factor.

14 Only 3 studies consider funding research and technological innovation.

15 For instance, I consider tax rebates to economic sectors on an aggregate level, and so I do not consider that tax rebates to employees are in general more popular than to firms.

16 Please note that Russia spans multiple continents (Europe and Asia). In this list, I categorized Russia under Europe. To avoid double counting I only counted original datasets, for instance Douenne and Fabre (2020, 2022) was based on the same dataset and (Konc et al., 2022; Maestre-Andrés et al., 2021; Savin et al., 2020) as well.

17 For a recent overview of carbon pricing initiatives around the world, see: https://carbonpricingdashboard.worldbank.org/map_data.

18 The PETRAS project (Policies for Ecological Tax Reform: Assessment of Social Responses) was about responses to ecological tax reform (ETR) in Europe.

Additional information

Funding

This work was supported by the by BELSPO (Belgian Science Policy Office) through the BRAIN-be 2.0 research program.