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(I originally posed this question under economics -- https://economics.stackexchange.com/questions/33267/why-arent-we-seeing-carbon-taxes-in-practice -- where the consensus seems to be that in principle carbon taxes are a good idea but the stumbling block is politics. So, it seemed appropriate to re-post the question here. Note that the question is not about complex emissions trading schemes, but rather just a straight tax on carbon.)

It seems that there are many advantages to carbon taxes, including pricing in the environmental cost and generating revenue (that could offset other taxes). So why are we not seeing them in practice, at least not very much of them? I can think of some reasons below, but I don't know which of these if any actually play a significant role in practice and/or are actually well motivated. Am I missing anything? Is there any good study of this?

  1. Too difficult to implement / will generate an underground carbon economy. This would be a concern with many taxes, but it seems we should be able to have a pretty good handle on where carbon enters the economy given the necessary physical volumes and processing.

  2. Will hurt economic activity. But it seems that this can be addressed by using the revenue to stimulate economic activity / reduce distortionary taxes.

  3. Will create too big of a shock to the economy with unpredictable consequences. But the tax could be gradually introduced according to a schedule.

  4. Unfair to industries that will suffer from this tax. But we generally don't seem inherently very concerned about disruption of industries (e.g., taxi industry) and it is hard to argue that such action would come as a surprise at this point. Also, again, the tax could be gradually introduced according to a schedule.

  5. Will economically hurt people who can't afford it. But this could be addressed by using the revenue intelligently (or by targeting only certain types of carbon, e.g., airline tickets).

  6. Politically hard to sell. Even if it is in their interest, too many citizens will reflexively complain about, for example, high gasoline prices. But would they really feel this way when combined with, for example, a check made out from the government distributing the revenue in a basic-income sort of way? Or is there some other effective way to clearly present it as not just an additional tax from a greedy government?

  7. Industry is politically too powerful. It will attack/reward politicians based on their actions and launch massive public relations campaigns. But is it really that powerful or is that exaggerated in people's imagination?

  8. Even though many of the above aren't actually true, citizens and/or politicians are unduly worried that they are true (or simply not well educated about the option), are risk averse, and therefore they don't pursue this route.

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    Without international co-operation no country is willing to risk that imposing any sort of forced measure towards a greener economy will harm itself at the expense of nations that do not take that step. – Jontia Dec 15 '19 at 21:30
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    @Jontia: I think Warren has proposed to tax imports in the US based on carbon externality, so it might not be that difficult to expand taxation outside of national borders, at least for the big countries. – Fizz Dec 15 '19 at 22:58
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    @Fizz I think I heard something similar from mister Timmermans, the EU Commissioner for climate, during his confirmation hearing. – JJ for Transparency and Monica Dec 15 '19 at 23:39
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    @Jontia That would be logical. However, the same argument applies to essentially every single government intervention that has any effect at all; most governments don't seem to be bothered by this. And indeed, many interventions that are related to ecology in other ways (e.g. various clean river/air acts, subsidies on "clean" energy etc.). In any case, carbon taxes are in effect in many countries all over the world. – Luaan Dec 16 '19 at 7:27
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    It's absolutely based in part on the comment of Jontia. If a country really implements this tax at a rate that would make a true environmental impact, they certainly put them at risk of an incurring an industrial exodus to more lenient countries. This already happens when other taxes are raised that cause the labor cost to rise and companies relocate to other countries. The issue is so much more layered and subtle, but raising taxes is not going to solve the climate problem. Also taxes =/= revenue. – George Derpi Dec 16 '19 at 12:28
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This from an unpublished/draft paper, but I'm quoting it anyway because it seems to be one of the few actual surveys on why [some] voters actually oppose such a measure, in France at least:

their perception about the properties of the tax are largely biased: people overestimate the negative impact on their purchasing power, wrongly think the scheme is regressive, and do not perceive it as environmentally effective

I'll also note from a published paper that while o.m's answer is correct... it is indeed difficult to pass such carbon taxes:

carbon taxes are one of the least used climate policy instruments. In 2016, 18 countries and two Canadian provinces have implemented a carbon tax, with Chile set to do so in 2018 (Bloomberg New Energy Finance, 2016; Farid et al., 2016; World Bank, 2016). In comparison, 176 countries had policy targets for renewable energy and/or energy efficiency, and 110 national and subnational jurisdictions had a feed‐in tariff (REN21, 2017). Carbon tax proposals have been undone, sometimes at an advanced political stage, for example in Australia (in 2014), France (in 2000), Switzerland (in 2000 and 2015), and most recently in the United States in Washington State (in 2016). In other contexts, policymakers may have simply refrained from including carbon taxes in their agenda. The underutilization of carbon taxes is striking and potentially a concern.

The same paper suggest that lobbying has been effective in styming such carbon taxes (giving Australia as example) and quotes some comparative acceptability figures for the US:

Different quantitative and qualitative studies show people's preference for low‐carbon subsidies over taxes (Cherry, Kallbekken, & Kroll, 2012; de Groot & Schuitema's, 2012; Kallbekken & Aasen, 2010; Steg, Dreijerink, & Abrahamse, 2006). A survey on American citizens by Leiserowitz, Maibach, Roser‐Renouf, Feinberg, and Rosenthal (2013) found that while 71% of the American public support tax rebates for energy‐efficient vehicles or solar panels, only 43% would support a carbon tax, even if assumed to cost the average American household the relatively low amount of US$180 per year. That is, voters tend to prefer subsidies and tax rebates to carbon taxes. However, the evidence is more equivocal on regulation, and the extent to which it is preferred to carbon taxes [...]

However, the preference of subsidies over taxes is hardly unique to the US, nor is the overestimation of the personal costs of a carbon tax unique to France, and both may be rooted in more universal psychology issues:

There is a perception among voters that the personal costs of a tax would be too high. A Swedish survey by Jagers and Hammar (2009) found that people associate carbon taxes with higher personal costs, more than they do with alternative policy instruments. A discrete choice experiment by Alberini, Scasny, and Bigano (2016) showed that Italians had a preference, among climate policy instruments, for subsidies over carbon taxes. Participants in a lab experiment by Heres, Kallbekken, and Galarraga (2015) similarly expected higher payoffs from subsidies than from taxes, especially when there was uncertainty on how tax revenues would be “rebated.” Ex ante, individuals tend to overestimate the cost of an environmental tax, and underestimate its benefits (Carattini et al., 2018; Odeck & Bråthen, 2002; Schuitema, Steg, & Forward, 2010). They are also prone to ignore the indirect costs of subsidies, which will most likely be financed through either higher income taxes or higher electricity bills (Jagers & Hammar, 2009; Kallbekken & Aasen, 2010). The literature in social psychology also suggests that individuals prefer subsidies because they are perceived as less coercive than taxes. Taxes are “pushed” onto polluters, imposing a mandatory cost, while subsidies are seen as “pull” measures, which supposedly reward climate‐friendly behavior (de Groot & Schuitema, 2012; Rosentrater et al., 2012; Steg et al., 2006).

[...]

People are concerned about the wider economic impact of a carbon tax. This has been illustrated in Switzerland, where, in two different instances more than 10 years apart, concern about the potential competitiveness and employment effects of energy taxes contributed to their rejection in public ballots, even in the context of very limited unemployment (Carattini, Baranzini, Thalmann, Varone, & Vöhringer, 2017; Thalmann, 2004). While these concerns are partly justified, voters may tend to overestimate competitiveness and job effects. In the specific case of Thalmann (2004), for instance, virtually all respondents expressed concern for unemployment, despite there were no unemployed individuals in the sample and the population‐wide unemployment rate was, at the time in Switzerland, below 2%. Given that the proposals in the ballot were not especially disruptive, and given that most people in the sample were unlikely to be seriously exposed to unemployment risks, we consider this instance as a case of overreaction. Fears of competitiveness effects and job losses may also result from specific information campaigns led by energy‐intensive companies, as in the case of Australia (cf. Spash & Lo, 2012).

Also the French public expectation that carbon taxes are environmentally ineffective is shared more widely

Individuals do not see carbon taxes as an effective way to discourage high‐carbon behavior (Klok, Larsen, Dahl, & Hansen, 2006; Steg et al., 2006). They consider low‐carbon subsidies to be a more powerful way to reduce greenhouse gas emissions, especially if the cost of switching from consuming high‐carbon goods to low‐carbon goods is considered high. Many voters believe that the price elasticity of demand for carbon‐intensive goods is close to zero. The expectation that carbon taxes do not work is one of the main reasons for their rejection by people in surveys and real ballots (Baranzini & Carattini, 2017; Carattini et al., 2017; Hsu, Walters, & Purgas, 2008; Kallbekken & Aasen, 2010; Kallbekken & Sælen, 2011).

Insert the obligatory quote that in politics perception is reality (or everything) and/or that this is a self-fulfilling prophecy...

The latter paper notes that (consequently) a gradual and/or trial introduction of carbon taxes should be pursued. That might be one of the reasons why Germany plans to introduce a low-rate carbon tax.

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    Germany introduces such a low initial rate because it has a coalition government. One partner wanted a carbon tax, another partner wanted no carbon tax, so they agreed on an insignificant carbon tax. – o.m. Dec 16 '19 at 6:45
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    In addition to all you've said about taxes, as a taxpayer myself I can volunteer the perspective that "temporary" taxes all too often become permanent, and while $180 per year doesn't seem like a lot of money, there are many other worthwhile causes that are also competing for that $180, and the next $180, and the next $180, and so on. I think it's fair to say that the average taxpayer wishes the government would spend a bit more time figuring out how to do more with the money it already has. – Robert Harvey Dec 16 '19 at 18:28
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    @RobertHarvey who suggested that carbon taxes should be temporary at all (other than that one day far in the future maybe we figure out how to do things without much carbon)? And the question here isn't about whether we should have more taxes overall for more government spending. It's a question about, given that tax revenue needs to be raised, should we raise (some of) it through carbon taxes instead of through other means.. – present Dec 17 '19 at 11:57
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    @RobertHarvey The purpose of a Pigovian tax is primarily to make you pay for the costs you are already incurring, not primarily to raise money for the government. Assuming the tax is set correctly, if you pay an extra $180 under the tax, that's because you are (indirectly) causing $180 of economic damage to other people. Is it right that you can do that without compensating them? – user253751 Dec 17 '19 at 13:00
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The lack of carbon taxes is a great example of NIMBYism:

NIMBY (an acronym for the phrase "Not In My Back Yard") is a characterisation of opposition by residents to a proposed development in their local area. It carries the connotation that such residents are only opposing the development because it is close to them and that they would tolerate or support it if it were built farther away.

Many people agree that climate change is real. Many agree that it is caused by human activity. Many agree that we should do something about it. But talk is cheap. It's easy to discuss climate change in endless conferences and committees, issue declarations of intent, sign non-binding international agreements, demand that someone else restricts their activities, etc. But as soon as the person making the declarations actually has to walk the walk, you start seeing an endless stream of hypocrisy. That's why it's the kids who march in the streets with Greta, not current taxpayers who would need to pay for the consequences of a carbon-neutral economy out of their own pocket.

Hence even the world's most progressive countries lack a carbon tax that would come anywhere close to covering the cost of externalities. It's just too expensive and too inconvenient, hence it would never get done.

  • Comments are not for extended discussion; this conversation has been moved to chat. – yannis Dec 19 '19 at 23:09
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Germany decided to introduce a carbon tax at the initial level of €10/ton from 2021. Some people call it a gradual step in the right direction, others call it completely insufficient to modify industry and consumer decisions. Some parts of the climate package are held up by the States' Chamber over finance issues, others like the carbon tax are going forward.

I believe there are other examples.

  • Thanks -- would you mind posting this example on the econ stackexchange (see link in question) as well? – present Dec 15 '19 at 21:01
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    Note that as of today the planned price was raised to 25€/ton (source in german). Whether that's really better is another question... – germi Dec 16 '19 at 10:39
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    25€ is actually just the beginning - the plan is to raise it gradually up to 55€ until 2025. But that's still far behind the demands of most climate protection NGOs. And then there is the question how many industries will manage to negotiate exceptions from this tax. – Philipp Dec 16 '19 at 11:43
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    Note that there is almost universal agreement within Germany that the climate package deal is a pathetic failure and the carbon tax especially. It is quite likely that it will fail to have any effect at all and then be abused as proof that carbon taxes are useless. – Tom Dec 17 '19 at 10:21
  • The actual demand of the scientist were 190€/ton from 1/2020. From an economical view, this price would be needed to have the necessary impact. 10€/ton is just a bad joke. – miep Dec 17 '19 at 11:33
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Too much of the economic system is based on external costs being for free. Many of our most important industries today would not be profitable if they had to pay for the natural resources they are using at their replacement cost (where possible) or actual value (where not, such as oil).

These industries are also ones with the most intensive lobby work. We have some evidence that the oil industry, for example, knew about and understood climate change since 1954 - and buried the topic. Other heavily polluting industries can't be far behind and probably had a much better and earlier understanding of their effects on the environment than the general public.

The main political issue has been stated well by one of the Fridays for Future activists: Those who make the decisions today will be long dead by the time the consequences of their decisions happen.

We have seen a shift towards conservative politics in the western democracies over the last decades, with social-democratic parties on the decline, conservatives holding their ground and green parties rising while at the same time becoming less revolutionary and more middle-class. That puts conservatives in power in most governments today, and makes social-democrats and liberals orient more towards the conservative than the social ideals (e.g. the social democratic party of my home country today has a party program that is more right-wing and conservative than the conservative party program of the 1950s).

Conservatives prefer the status quo and are unwilling to implement a radical change today, with a high potential to lower the current status of living and prosperity, in return for a potential better future, especially one that they won't experience themselves. Many conservative voters are elderly and have worked hard all their lives, in Europe including the difficult post-war years, and want to now enjoy the fruits of their labour.

So there are a number of factors that make voters, politicians and companies unwilling to accept a tax with amounts that would actually compensate for the environmental damage done (e.g. pay for measures to offset the carbon emissions).

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    There is no such thing as an "actual value" beyond what people are willing to pay. – John Dec 18 '19 at 11:32
  • So, how much for your mother? – Tom Dec 18 '19 at 11:47
  • I don’t own her. – John Dec 18 '19 at 11:51
  • Many of our most important industries today would not be profitable if they had to pay for the natural resources they are using at their replacement cost For some, sure; but I suspect for most, the cost would ultimately be shouldered by the consumers. People would end up poorer. That's of course why there's a tendency to exempt things the various proponents like from such "taxes" (like farming or forestry) while leaving the things they don't like to drop dead (like cars). It's funny watching the radicals fight against oil companies proposing to use waste CO2 to make fuel using e.g. solar. – Luaan Dec 18 '19 at 11:55
  • @John and neither do you own the air you breathe - or pollute, the river and its water, or the oil you pump out of the ground. That you can legally sell that oil is due to legal constructions of ownership that could just as well be constructed differently - the way nobody owns your mother but ownership of people, aka slavery, not so long ago was a valid concept and a price for a human was a perfectly normal question. – Tom Dec 18 '19 at 13:16
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A combination of 2 things:

Lack of a sense of urgency with regards to climate change. In as far as most measures to limit emissions go, most countries have so far opted for measures which either a) regulate or tax corporations, b) bribe voters with clean-tech subsidies or c) infrastructure upgrades. The level of climate-related spending by governments generally hasn't been high enough to really hit their overall budget, so subsidies and infrastructure spending have so far been within affordable limits and governments have been extremely keen not to lose votes by taxing voters directly.

The second issue is the, well-justified, perception that it would be just another tax and revenue stream for governments. Certainly, France, for example, with its steady 2.5-3% deficit and large proportion of public sector spending, has always been a keen promoter of fuel taxes, from way before climate change was anywhere on the public's radar. And, as I recall, no government has a flexible tax on fuel: when oil is at $30/barrel, you get taxed $x. When it is at $110/barrel, you get taxed the same exact amount. A government focussed on fuel taxes to combat climate change but also prudent about economic shocks to its citizens would consider lowering the consumption-limiting tax when the commodity is hitting a price spike anyway. In fact, fuel-saving measures are sometimes throttled to keep those taxes coming in (granted, that's a 2009 article).

Some in the US have proposed a carbon tax+dividend which would be intentionally revenue-neutral to avoid these justified concerns.

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