Smarter labelling, taxpayer rebates, and investments in green infrastructure can all play a role in making carbon pricing more palatable to voters and less politically explosive for elected officials, The Economist reports, in a commentary based largely on a new working paper for the International Monetary Fund.
The working paper concludes that carbon taxes are about 50% more effective than carbon cap-and-trade systems at cutting greenhouse gas emissions, and that a price of US$70 per tonne by 2030 would enable most G20 countries to approach or exceed their commitments under the Paris Agreement. Moreover, citing a separate study, The Economist notes that “if developing countries were to replace fuel subsidies with carbon taxes consistent with the Paris target, the windfall would cover much—95% in India’s case—of what they must spend on infrastructure and public services to meet the UN’s sustainable development goals.”
But “carbon prices have not been high enough to drive real changes in behaviour,” the magazine notes, largely because politicians “are loath to upset voters, who dislike taxes, or powerful lobbies in industries that would be hardest hit. So cap-and-trade schemes, which can issue new permits to depress prices, outnumber tax-based ones. The taxes that exist tend to be symbolic. As a result, merely 1% of the emissions covered by both pricing schemes fetch more than $40 per tonne of CO2,” the low-end estimate of what would be needed by 2020 to stay within the Paris targets.
The Economist suggests countries can make “high taxes palatable” by rebranding them as fees, contributions, or levies. And “a more substantive approach is to return the money raised to citizens or affected businesses. Switzerland’s program doles out two-thirds of its receipts to households—SFr68 ($68) for each citizen last year—and to firms. The rest goes towards green investments, such as renewable power. This builds public support and makes it hard for a future government to reverse course.”
That approach “also makes a typically regressive tax more equitable,” the magazine adds, delivering net gains rather than losses to people on the lowest rungs of the economic ladder. (h/t to The Energy Mix subscriber Lyn Adamson for first pointing us to this story)