Skip to main content

Thank you for visiting You are using a browser version with limited support for CSS. To obtain the best experience, we recommend you use a more up to date browser (or turn off compatibility mode in Internet Explorer). In the meantime, to ensure continued support, we are displaying the site without styles and JavaScript.

Making carbon pricing work for citizens


The gap between actual carbon prices and those required to achieve ambitious climate change mitigation could be closed by enhancing the public acceptability of carbon pricing through appropriate use of the revenues raised. In this Perspective, we synthesize findings regarding the optimal use of carbon revenues from both traditional economic analyses and studies in behavioural and political science that are focused on public acceptability. We then compare real-world carbon pricing regimes with theoretical insights on distributional fairness, revenue salience, political trust and policy stability. We argue that traditional economic lessons on efficiency and equity are subsidiary to the primary challenge of garnering greater political acceptability and make recommendations for enhancing political support through appropriate revenue uses in different economic and political circumstances.

This is a preview of subscription content, access via your institution

Relevant articles

Open Access articles citing this article.

Access options

Rent or buy this article

Prices vary by article type



Prices may be subject to local taxes which are calculated during checkout

Fig. 1: Carbon prices, trust and corruption.
Fig. 2: Decision-tree diagram for carbon revenue recycling.
Fig. 3: Real-world revenue recycling.
Fig. 4: Global revenue recycling.


  1. State and Trends of Carbon Pricing 2018 (World Bank, Ecofys & Vivid Economics, 2018).

  2. Carbon Pricing Watch 2017 (World Bank & Ecofys, 2017);

  3. Stiglitz, J. E. & Stern, N. Report of the High-Level Commission on Carbon Prices (World Bank, 2017).

  4. Benson, J. E. Massachusetts Bill H.1726. An Act to Promote Green Infrastructure, Reduce Greenhouse Gas Emissions, and Create Jobs (General Court of the Commonwealth of Massachusetts, 2017);

  5. California’s 2017 Climate Change Scoping Plan (California Air Resources Board, 2017).

  6. US Republican idea for tax on carbon makes climate sense. Nature 542, 271–272 (2017).

  7. Baranzini, A., Goldemberg, J. & Speck, S. A future for carbon taxes. Ecol. Econ. 32, 395–412 (2000).

    Google Scholar 

  8. Drews, S. & van den Bergh, J. C. J. M. What explains public support for climate policies? A review of empirical and experimental studies. Clim. Policy 16, 855–876 (2016).

    Google Scholar 

  9. Bowen, A. Carbon Pricing: How Best to Use the Revenue? (Grantham Research Institute on Climate Change and the Environment, 2015).

  10. Engström, G. & Gars, J. Optimal taxation in the macroeconomics of climate change. Annu. Rev. Resour. Econ. 7, 127–150 (2015).

    Google Scholar 

  11. Aldy, J. E. & Stavins, R. N. The promise and problems of pricing carbon: theory and experience. J. Environ. Dev. 21, 152–180 (2012).

    Google Scholar 

  12. Aldy, J. E. & Pizer, W. A. The competitiveness impacts of climate change mitigation policies. J. Assoc. Environ. Resour. Econ. 2, 565–595 (2015).

    Google Scholar 

  13. Jenkins, J. D. Political economy constraints on carbon pricing policies: What are the implications for economic efficiency, environmental efficacy, and climate policy design? Energy Policy 69, 467–477 (2014).

    Google Scholar 

  14. Impacts of Carbon Prices on Indicators of Competitiveness: A Review of Empirical Findings (OECD, 2015).

  15. Carbon Pricing, Competitiveness, and Carbon Leakage: Theory, Evidence and Policy Design (World Bank, 2015).

  16. Martin, R., Muûls, M., Laure, L. B. & Wagner, U. J. Industry compensation under relocation risk: a firm-level analysis of the EU emissions trading scheme. Am. Econ. Rev. 104, 2482–2508 (2014).

    Google Scholar 

  17. Svendsen, G. T., Daugbjerg, C., Hjollund, L. & Pedersen, A. B. Consumers, industrialists and the political economy of green taxation: CO2 taxation in OECD. Energy Policy 29, 489–497 (2001).

    Google Scholar 

  18. Jakob, M., Steckel, J. C. & Edenhofer, O. Consumption- versus production-based emission policies. Annu. Rev. Resour. Econ. 6, 297–318 (2014).

    Google Scholar 

  19. Andersen, M. S. & Ekins, P. (eds). Carbon-Energy Taxation: Lessons from Europe (Oxford Univ. Press, Oxford, 2009).

  20. Goulder, L. H. Climate change policy’s interactions with the tax system. Energy Econ. 40, S3–S11 (2013).

    Google Scholar 

  21. Klenert, D. & Mattauch, L. How to make a carbon tax reform progressive: The role of subsistence consumption. Econ. Lett. 138, 100–103 (2016).

    Google Scholar 

  22. Bennear, L. S. & Stavins, R. N. Second-best theory and the use of multiple policy instruments. Environ. Resour. Econ. 37, 111–129 (2007).

    Google Scholar 

  23. Combet, E. Fiscalité Carbone et Progrès Social (Carbon Taxation and Social Progress). PhD thesis, École des Hautes Études en Sciences Sociales (2013).

  24. Mirrlees, J. A. An exploration in the theory of optimal taxation. Rev. Econ. Stud. 38, 175–208 (1971).

    Google Scholar 

  25. Aigner, R. Environmental taxation and redistribution concerns. Finanz. Public Financ. Anal. 70, 249–277 (2014).

    Google Scholar 

  26. Cremer, H., Gahvari, F. & Ladoux, N. Environmental tax design with endogenous earning abilities (with applications to France). J. Environ. Econ. Manag. 59, 82–93 (2010).

    Google Scholar 

  27. Cremer, H. & Gahvari, F. Second-best taxation of emissions and polluting goods. J. Public Econ. 80, 169–197 (2001).

    Google Scholar 

  28. Jacobs, B. & de Mooij, R. A. Pigou meets Mirrlees: On the irrelevance of tax distortions for the second-best Pigouvian tax. J. Environ. Econ. Manag. 71, 90–108 (2015).

    Google Scholar 

  29. Klenert, D., Schwerhoff, G., Edenhofer, O. & Mattauch, L. Environmental taxation, inequality and engel’s law: the double dividend of redistribution. Environ. Resour. Econ. (2016).

    Google Scholar 

  30. Drèze, J. & Stern, N. Policy reform, shadow prices, and market prices. J. Public Econ. 42, 1–45 (1990).

    Google Scholar 

  31. Siegmeier, J. et al. The fiscal benefits of stringent climate change mitigation: an overview. Clim. Policy 18, 352–367 (2017).

    Google Scholar 

  32. Carbone, J. C., Morgenstern, R. D., Williams R. III & Burtraw, D. Deficit Reduction and Carbon Taxes: Budgetary, Economic, and Distributional Impacts (Resources for the Future, 2013).

  33. Combet, E. & Méjean, A. The Equity and Efficiency Trade-off of Carbon Tax Revenue Recycling: A Reexamination (CIRED, 2017);

  34. Goulder, L. H. & Hafstead, M. A. C. Tax Reform and Environmental Policy: Options for Recycling Revenue from a Tax on Carbon Dioxide Discussion Paper 13-31 (Resources for the Future, 2013).

  35. Mckibbin, W. J., Morris, A. C., Wilcoxen, P. J. & Cai, Y. The Potential Role of a Carbon Tax in U. S. Fiscal Reform (Brookings Climate and Energy Economics, 2012).

  36. Rausch, S., Metcalf, G. E. & Reilly, J. M. Distributional impacts of carbon pricing: a general equilibrium approach with micro-data for households. Energy Econ. 33, S22–S33 (2011).

    Google Scholar 

  37. Williams, R. C. I., Gordon, H., Burtraw, D., Carbone, J. C. & Morgenstern, R. D. The Initial Incidence of a Carbon Tax across US States. Natl Tax. J. 68, 195–214 (2015).

    Google Scholar 

  38. Rausch, S. & Reilly, J. Carbon taxes, deficits, and energy policy interactions. Natl Tax. J. 68, 157–178 (2015).

    Google Scholar 

  39. Gonand, F. The carbon tax, ageing and pension deficits. Environ. Model. Assess. 21, 307–322 (2016).

    Google Scholar 

  40. Camerer, C., Loewenstein, G. & Rabin, M. in Advances in Behavioral Economics (eds Camerer, C., Loewenstein, G. & Rabin, M.) 3–51 (Princeton Univ. Press, Princeton, NJ, 2004).

  41. Chetty, R., Looney, A. & Kroft, K. Salience and taxation: theory and evidence. Am. Econ. Rev. 99, 1145–1177 (2009).

    Google Scholar 

  42. DellaVigna, S. Psychology and economics: evidence from the field. J. Econ. Lit. 47, 315–372 (2009).

    Google Scholar 

  43. Shogren, J. F. & Taylor, L. O. On behavioral-environmental economics. Rev. Environ. Econ. Policy 2, 26–44 (2008).

    Google Scholar 

  44. Allcott, H., Mullainathan, S. & Taubinsky, D. Energy policy with externalities and internalities. J. Public Econ. 112, 72–88 (2014).

    Google Scholar 

  45. Alberini, A., Bigano, A., Šcasný, M., & Zverinoá, I. Preferences for energy efficiency vs. renewables: what is the willingness to pay to reduce CO2 emissions? Ecol. Econ. 144, 171–185 (2016).

    Google Scholar 

  46. Ziegler, A. Political orientation, environmental values, and climate change beliefs and attitudes: an empirical cross country analysis. Energy Econ. 63, 144–153 (2017).

    Google Scholar 

  47. Campbell, T. H. & Kay, A. C. Solution aversion: on the relation between ideology and motivated disbelief. J. Pers. Soc. Psychol. 107, 809–824 (2014).

    Google Scholar 

  48. Kahan, D. M., Jenkins-Smith, H. & Braman, D. Cultural cognition of scientific consensus. J. Risk Res. 14, 147–174 (2011).

    Google Scholar 

  49. Cherry, T. L., Kallbekken, S. & Kroll, S. Accepting market failure: cultural worldviews and the opposition to corrective environmental policies. J. Environ. Econ. Manag. 85, 193–204 (2017).

    Google Scholar 

  50. Kallbekken, S., Kroll, S. & Cherry, T. L. Do you not like Pigou, or do you not understand him? Tax aversion and revenue recycling in the lab. J. Environ. Econ. Manag. 62, 53–64 (2011).

    Google Scholar 

  51. Bristow, A. L., Wardman, M., Zanni, A. M. & Chintakayala, P. K. Public acceptability of personal carbon trading and carbon tax. Ecol. Econ. 69, 1824–1837 (2010).

    Google Scholar 

  52. Baranzini, A., Caliskan, M. & Carattini, S. Economic Prescriptions and Public Responses to Climate Policy HES-SO/HEG-GE/C-14/3/1 (Haute École de Gestion de Genève, 2014).

  53. Baranzini, A. & Carattini, S. Effectiveness, earmarking and labeling: testing the acceptability of carbon taxes with survey data. Environ. Econ. Policy Stud. 19, 197–227 (2017).

    Google Scholar 

  54. Hsu, S. L., Walters, J. & Purgas, A. Pollution tax heuristics: an empirical study of willingness to pay higher gasoline taxes. Energy Policy 36, 3612–3619 (2008).

    Google Scholar 

  55. Kallbekken, S. & Aasen, M. The demand for earmarking: results from a focus group study. Ecol. Econ. 69, 2183–2190 (2010).

    Google Scholar 

  56. Kotchen, M. J., Turk, Z. M. & Leiserowitz, A. A. Public willingness to pay for a US carbon tax and preferences for spending the revenue. Environ. Res. Lett. 12, 094012 (2017).

    Google Scholar 

  57. Steg, L., Dreijerink, L. & Abrahamse, W. Why are energy policies acceptable and effective? Environ. Behav. 38, 92–111 (2006).

    Google Scholar 

  58. Gevrek, Z. E. & Uyduranoglu, A. Public preferences for carbon tax attributes. Ecol. Econ. 118, 186–197 (2015).

    Google Scholar 

  59. Carattini, S., Baranzini, A., Thalmann, P., Varone, F. & Vöhringer, F. Green taxes in a post-Paris world: are millions of nays inevitable? Environ. Resour. Econ. 68, 97–128 (2017).

    Google Scholar 

  60. Carattini, S., Carvalho, M. & Fankhauser, S. How to Make Carbon Taxes More Acceptable (Grantham Research Institute on Climate Change and the Environment and Centre for Climate Change Economics and Policy, London School of Economics and Political Science, 2017).

  61. Atansah, P., Khandan, M., Moss, T., Mukherjee, A. & Richmond, J. When Do Subsidy Reforms Stick? Lessons from Iran, Nigeria, and India (Center for Global Development, 2017);

  62. Rivers, N. & Schaufele, B. Salience of carbon taxes in the gasoline market. J. Environ. Econ. Manag. 74, 23–36 (2015).

    Google Scholar 

  63. Davis, L. W. & Kilian, L. Estimating the effect of a gasoline tax on carbon emissions. J. Appl. Econ. 26, 1187–1214 (2011).

    Google Scholar 

  64. Baranzini, A. & Weber, S. Elasticities of gasoline demand in Switzerland. Energy Policy 63, 674–680 (2013).

    Google Scholar 

  65. Li, S., Linn, J. & Muehlegger, E. Gasoline taxes and consumer behavior. Am. Econ. J. Econ. Policy 6, 302–342 (2014).

    Google Scholar 

  66. Edenhofer, O., Knopf, B., Bak, C. & Bhattacharya, A. Aligning climate policy with finance ministers’ G20 agenda. Nat. Clim. Change 7, 463–465 (2017).

    Google Scholar 

  67. Investing in Climate, Investing in Growth (OECD, 2017).

  68. Sage, D. & Diamond, P. Europe’s New Social Reality: The Case Against Universal Basic Income (Policy Network, 2017);

  69. Rafaty, R. Perceptions of corruption, political distrust, and the weakening of climate policies. Glob. Environ. Polit. (2018).

  70. Hammar, H. & Jagers, S. C. Can trust in politicians explain individuals’ support for climate policy? The case of CO2 tax. Clim. Policy 5, 613–625 (2006).

    Google Scholar 

  71. Levi, M. & Stoker, L. Political trust and trustworthiness. Annu. Rev. Polit. Sci. 3, 475–507 (2000).

    Google Scholar 

  72. Rothstein, B. & Uslaner, E. M. All for all: equality, corruption, and social trust. World Polit. 58, 41–72 (2005).

    Google Scholar 

  73. Hourcade, J. C. & Combet, E. Carbon Taxation and Climate Finance: A Social Contract for Our Times [in French] (Les Petits Matins, Institut Veblen, Paris, 2017).

  74. Agell, J., Englund, P. & Södersten, J. A. N. Tax reform of the century: the Swedish experiment. Natl Tax. J. 49, 1–22 (1996).

    Google Scholar 

  75. Sterner, T. Environmental Tax Reform in Sweden. Int. J. Environ. Pollut. 5, 135–163 (1995).

    CAS  Google Scholar 

  76. Olson, M. The Logic of Collective Action: Public Goods and the Theory of Groups (Harvard Univ. Press, Cabridge, USA, 1965).

  77. Aldy, J. E. Mobilizing political action on behalf of future generations. Future Child. 26, 157–178 (2016).

    Google Scholar 

  78. Costa, H. Pork Barrel as a Signaling Tool: The Case of US Environmental Policy Working Paper No. 255 (Centre for Climate Change Economics and Policy, 2016).

  79. Primo, D. M. & Snyder, J. M. Party strength, the personal vote, and government spending. Am. J. Pol. Sci. 54, 354–370 (2010).

    Google Scholar 

  80. Lazarus, R. J. Super wicked problems and climate change: restraining the present to liberate the future. Cornell Law Rev. 94, 1153–1233 (2009).

    Google Scholar 

  81. Marsiliani, L. & Renstrom, T. I. Time inconsistency in environmental policy: tax earmarking as a commitment solution. Econ. J. 110, C123–C138 (2000).

    Google Scholar 

  82. Aklin, M. & Urpelainen, J. Political competition, path dependence, and the strategy of sustainable energy transitions. Am. J. Pol. Sci. 57, 643–658 (2013).

    Google Scholar 

  83. Rothstein, B. Just Institutions Matter: The Moral and Political Logic of the Universal Welfare State 153 (Cambridge Univ. Press, Cambridge, 1998).

  84. Boyce, J. Carbon Dividends: The Bipartisan Key to Climate Policy? (INET Economics, 2017);

  85. Gilens, M. Why Americans Hate Welfare: Race, Media, and the Politics of Antipoverty Policy (Univ. Chicago Press, Chicago, IL, 2009).

  86. Auctioning (European Commission, 2018);

  87. Burtraw, D. & Sekar, S. Two world views on carbon revenues. J. Environ. Stud. Sci. 4, 110–120 (2014).

    Google Scholar 

  88. Edenhofer, O., Flachsland, C., Jakob, M. & Lessman, K. in The Oxford Handbook of the Macroeconomics of Global Warming (eds Bernard, L. & Semmler, W.) 261–297 (Oxford Univ. Press, Oxford, 2015).

  89. Koch, N., Grosjean, G., Fuss, S. & Edenhofer, O. Politics matters: Regulatory events as catalysts for price formation under cap-and-trade. J. Environ. Econ. Manag. 78, 121–139 (2016).

    Google Scholar 

  90. Soile, I. & Mu, X. Who benefit most from fuel subsidies? Evidence from Nigeria. Energy Policy 87, 314–324 (2015).

    Google Scholar 

  91. State and Trends of Carbon Pricing 2016 (World Bank, Ecofys & Vivid Economics, 2016).

  92. Schwab, K. The Global Competitiveness Report 2012–2013: Full Data Edition (World Economics Forum, 2012).

  93. Corruption Perceptions Index (Transparency International, 2017).

  94. Carbon Levy and Rebates (Government of Alberta, 2018);

  95. Jotzo, F. Australia’s carbon price. Nat. Clim. Change 2, 475–476 (2012).

    Google Scholar 

  96. Budget and Fiscal Plan 2016/17–2018/19 (British Columbia Ministry of Finance);

  97. Beck, M., Rivers, N., Wigle, R. & Yonezawa, H. Carbon tax and revenue recycling: Impacts on households in British Columbia. Resour. Energy Econ. 41, 40–69 (2015).

    Google Scholar 

  98. Carl, J. & Fedor, D. Tracking global carbon revenues: A survey of carbon taxes versus cap-and-trade in the real world. Energy Policy 96, 50–77 (2016).

    Google Scholar 

  99. CO 2 Levy (FOEN, 2017);

  100. Carbon tax: a timeline of its tortuous history in Australia. ABC News (17 July 2014);

  101. Dreyer, S. J., Walker, I., McCoy, S. K. & Teisl, M. F. Australians’ views on carbon pricing before and after the 2013 federal election. Nat. Clim. Change 5, 1064–1067 (2015).

    Google Scholar 

  102. Harrison, K. The Political Economy of British Columbia’s Carbon Tax Environment Working Paper No. 63 (OECD, 2013).

  103. Murray, B. & Rivers, N. British Columbia’s revenue-neutral carbon tax: a review of the latest ‘grand experiment’ in environmental policy. Energy Policy 86, 674–683 (2015).

    Google Scholar 

  104. Baranzini, A., Thalmann, P. & Gonseth, C. in Voluntary Approaches in Climate Policy (eds Barranzini, A. & Thalman, P.) 249–277 (Edward Elgar, Cheltenham, 2004).

  105. Thalmann, P. The public acceptance of green taxes: 2 million voters express their opinion. Public Choice 119, 179–217 (2004).

    Google Scholar 

  106. Gebhart, T. Direct Democracy and Environmental Policy [in German] (Deutscher Universitäts, Wiesbaden, 2002).

  107. Évaluations des Voies et Moyens - Annexe au Projet de Loi de Finances Pour 2018 (French Government, 2018);

  108. Perthuis, C. de & Faure, A. Hausse de la taxe carbone: quels impacts sur le porte-monnaie? The Conversation (8 January 2018);

Download references


We thank S. Carattini, M. Carvalho, I. Dorband, C. Flachsland, M. Jakob, F. Jotzo, L. Osberg, J. Pless, A. Skarbek and C. Touzet for helpful discussions. We further thank M. Roesti, J. Schiele and S. Sulikova for research assistance. We thank participants of a symposium for the High-Level Commission on Carbon Prices at the Ecole Normale Supérieure, seminar audiences in Berlin, Gothenburg and Oxford and attendees of the 23rd annual conference of the European Association of Environmental and Resource Economists for useful comments. L. M. was supported by a postdoctoral fellowship of the German Academic Exchange Service (DAAD). C.H. acknowledges support from the Oxford Martin Programme on the Post-Carbon Transition.

Author information

Authors and Affiliations



Emmanuel Combet, David Klenert and Linus Mattauch jointly conceived the study. Its design was further refined through inputs from Cameron Hepburn and Ryan Rafaty. David Klenert coordinated the writing process and wrote large parts of the manuscript with inputs from Emmanuel Combet, Cameron Hepburn, Linus Mattauch and Ryan Rafaty. Ryan Rafaty is responsible for writing the section on political science and for creating Fig. 1. David Klenert and Linus Mattauch jointly wrote the behavioral science and public economics sections. Ottmar Edenhofer and Nicholas Stern provided crucial feedback on the manuscript at different stages.

Corresponding author

Correspondence to David Klenert.

Ethics declarations

Competing interests

R.R. is employed as a researcher at Climate Leadership Council, a non-governmental organization promoting a proposal for a national US carbon tax with revenues allocated as per-capita lump-sum dividends. This employment commenced five months after he joined as a co-author.

Additional information

Publisher's note: Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Supplementary information

Supplementary Information

Supplementary notes 1-2, Supplementary tables 1-2, Supplementary references

Supplementary Data 1

A more extensive summary of publicly available data on real-world carbon pricing revenue recycling

Rights and permissions

Reprints and Permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Klenert, D., Mattauch, L., Combet, E. et al. Making carbon pricing work for citizens. Nature Clim Change 8, 669–677 (2018).

Download citation

  • Received:

  • Revised:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI:

This article is cited by


Quick links

Nature Briefing

Sign up for the Nature Briefing newsletter — what matters in science, free to your inbox daily.

Get the most important science stories of the day, free in your inbox. Sign up for Nature Briefing