Making carbon pricing work for citizens

Abstract

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.

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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.

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Acknowledgements

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.

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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.

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Correspondence to David Klenert.

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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.

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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

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Klenert, D., Mattauch, L., Combet, E. et al. Making carbon pricing work for citizens. Nature Clim Change 8, 669–677 (2018). https://doi.org/10.1038/s41558-018-0201-2

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