Chapter 7 Public Attitudes Toward Energy, Global Warming, and Carbon Taxes
4. Tying fuel tax increases to income tax re- ductions increases public support for high
fuel taxes.
Rising public concern and willingness to pay signal some optimism that public will to ad- dress global warming will solidify soon. Th e carbon tax levels that Americans support, however, fall short of what may be needed in the short run to make carbon capture and se- questration feasible, let alone other alternative energy sources such as nuclear, wind and so- lar. Our assessment in Chapter 3 suggests that a carbon charge in the range of $30 per ton of CO2 is necessary to reduce U. S. carbon emis- sions signifi cantly and to reduce worldwide emissions of greenhouse gases. If consumers bore that cost directly, it would amount to
$13.50 per month on a typical household elec- tricity bill.5
Th e total cost to consumers also depends on how the revenues raised by the carbon charge are distributed. Early economic writing on carbon taxes argues that they be revenue neu- tral, that is, the revenue from carbon taxes would be used to reduce payroll or capital taxes. A fuel tax could be structured to reduce income taxes and even to off set the regressive incidence of the fuel tax itself.
Swapping income taxes for fuel taxes has con- siderable public appeal. We tested support for fuel taxes in isolation and when tied to reduc- tions in other taxes in national sample surveys conducted in May 2006 and November 2006.
In May 2006, we asked people whether they would support a $1.00 per gallon gasoline tax and a $25 per month electricity charge. Only
9 percent said yes, and 72 percent said no, the remaindering being unsure. When that same tax was presented with an equivalent reduc- tion in income taxes for the typical family, support for the tax rose to 28 percent, and only a minority (47 percent) expressed opposition.
In November 2006, as mentioned above, we asked a national sample whether they would support a $.50 per gallon gasoline tax and $25 per month electricity tax: 21 percent said yes;
17 percent, unsure; 62 percent, no. We paired the same proposal with a reduction in income taxes by an equivalent amount: 34 percent said yes; 23 percent, unsure; and 43 percent, no.
We followed up these questions by asking those opposed, why they did not support the tax swap. Only 10 percent stated that they op- posed the fuel tax because the government would not also cut income taxes, and 18 per- cent said they could not aff ord to pay the tax.
By far the most common answer (of roughly one in four of the 43 percent of those op- posed) was that global warming is not a prob- lem. Th is amounts to 10 percent of the public unwilling to pay because they view the claims about global warming to be exaggerated or unfounded. Another 20 percent of opponents thought that we could reduce global warming without the taxes. Approximately half of those opposed to the tax relied on a rationale that either denied the problem or thought that the solution could be implemented without the tax.6
We do not claim to have measured the magic number—the carbon charge that a majority of the public would unquestionably support.
Rather, this series of surveys suggests that public opinion on global warming is changing and changing in ways that make a more sub- stantial climate policy politically attainable.
Carbon taxes serve as a reference case. Th ey are an effi cient way to incorporate the costs of global warming in the price of energy, but they have been viewed as politically impossible ow- ing to the unpopularity of taxes. While other price-based policy instruments, such as a cap- and-trade system, may not be perceived as a tax, they would have the same eff ect on energy prices.
Most encouraging, though, is the trend. Pub- lic discussion about global warming over the past three years has made a noticeable impact on public willingness to deal with this prob- lem even through what is supposedly the least popular instrument, taxes. Willingness to pay has grown fi ft y percent in just 36 months. Th at growth is directly attributable to the increas- ing number of people who view global warm- ing as one of the nation’s top environmental problems. It also refl ects a growing reality that global warming is as important as oil importa- tion in the way the U.S. public thinks about public policy issues involving energy.
CITATIONS AND NOTES
1. Jeff rey Kluger, “Global Warming Heats Up” Time April 3, 2006, vol. 167, no. 4, page 25.
2. The observation that carbon taxes off er an effi cient mechanism dates at least to 1990; see James Poterba,
“Tax Policy To Combat Global Warming: On Design- ing a Carbon Tax,” in Global Warming: Economic Policy Responses, Rudiger Dornbusch and James Poterba, eds. Cambridge, MA: MIT Press, 1990. For an excellent survey see James Poterba, “Global Warming Policy: A Public Finance Perspective” Journal of Economic Per- spectives vol. 7, Fall 1993, pages 47-63. Subsequent analyses point out the importance of recycling rev- enues to reduce taxes on labor and capital. See A.
Lans Bovenberg and Lawrence Goulder, “Optimal En- vironmental Taxation in the Presence of Other Taxes:
General-Equilibrium Analyses.” American Economic Re- view. Vol. 86 (September 1996), pages 985-1000, and A. Lans Bovenberg and Lawrence Goulder, “Neutraliz- ing the Adverse Industry Impacts of CO2 Abatement Policies: What Does It Cost” NBER Working Paper No.
W7654, April 2000.
3. For example, see Poterba, “Tax Policy to Combat Glob- al Warming,” op cit., pages 72-75, and Bovenberg and Goulder, “Neutralizing the Adverse Industry Impacts of CO2 Abatement Policies,” op cit., pages 1-3. There are other political aspects to the choice of policy in- struments, especially support or opposition from af- fected interests and the credibility of the government in setting up a program. The cap-and-trade system for sulfur dioxide refl ected the political coalitions that supported and opposed the legislation. See Paul Jos- kow and Richard Schmalensee “The Political Economy of Market-Based Environmental Policy: The U. S. Acid Rain Program.” Journal of Law and Economics vol. 41 (1998), pages 37-83.
4. The amount of reduction was selected in consulta- tion with those managing the EPPA model, see Ch.
2. We kept the 30 percent fi gure in both versions of the question so that people focused on a similar num- ber, which psychologically suggests an equivalence between the two savings. We do not imply any real equivalence here.
5. This calculation assumes 1 tonne CO2 per MWh for coal-fi red generation and half that amount for gas- fi red generation, and that about half the hours would refl ect the carbon cost of gas generation and the other half that of coal-fi red generation. Average household use is estimated at 600 kwh/mo.
6. The remaining respondents thought that the tax should not be on fuels but on oil companies or that the income tax cut was unfair, or that this just wasn’t a good reason for a tax.