Earmarking Increases Support for Carbon Taxes

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In the book Peace not Pollution: How Going Green Can Tackle Climate Change and Toxic Politics from the independent research center The Center for Economic Policy Research, Jens Ewald, doctoral student in economics, Erik Sterner, researcher at Environment for Development and Thomas Sterner, professor of environmental economics at the University of Gothenburg, write about the conditions and challenges of carbon tax.

The combustion of fossil fuels has the largest single impact on the climate. According to the researchers, a global tax on carbon emissions and other greenhouse gases from all sectors would thus be one of the most obvious and efficient instruments for reducing emissions.

– Historically, fuel taxes are one of the most successful climate measures. In Europe, for example, fuel prices are three to four times higher than in the US. If the entire OECD, the Organisation for Economic Co-operation and Development, were to tax fuels at the European level, fuel use in these countries would likely decrease by over 50% compared to using US prices, says Jens Ewald.

A communication effort

However, even though the majority is aware of the need for a green transition, support for climate taxes varies. One explanation is that measures implemented today will not yield results for several years; another is the impact on economic inequality. In France, a protest action called Les gilets jaunes was launched in 2018 in connection with, among other things, a proposed increase in fuel prices.

By saying that taxes are used for climate purposes, citizens understand the purpose of, for example, a gasoline tax much better and then acceptance increases

– It is ultimately very much a communication effort. By saying that taxes are used for climate purposes, citizens understand the purpose of, for example, a gasoline tax much better and then acceptance increases, says Thomas Sterner.

Earmarking instead of regular budget process

Economists usually oppose earmarking tax revenues for climate purposes in this way, instead of letting the government determine the distribution of tax revenues through the regular budget process. Simultaneously, research shows that this approach is a way to increase acceptance and support for a green transition.

– In practice, however, it may not make much difference, because in the coming years the EU will spend huge amounts of money related to climate change. Many countries are likely to spend much more money on climate purposes such as expanded transmission, heat storage, securing infrastructure and climate adaptation than they receive in revenue from carbon taxes, says Thomas Sterner.

Text: Jessica Oscarsson