Polarization prevents a “popular” dividend

Over time, political experience with carbon taxes has highlighted a truth that should have been obvious long ago: Carbon taxes are taxes, and people don’t like taxes. People don’t like paying more money for stuff. More broadly, carbon taxes are an almost perfectly terrible policy from the perspective of political economy. They make costs visible to everyone, while the benefits are diffuse and indirect. They create many enemies but have almost no support outside the climate movement itself. All of the political intensity is with opponents. (More on that here.) One response to this critique that has grown increasingly popular in recent years is the notion of refunding the tax revenue — giving the money back to voters. Various ways to do this have been proposed, the simplest being an equal dividend to each taxpayer. Some proposals have all the tax revenue refunded; some have a limited portion refunded. The idea is that the tax would discourage carbon-intensive activities, while the dividend would mute political opposition. In most of the proposed schemes, the lower half of the income scale comes out ahead — dividends are larger than tax burdens — and in some cases, up to 80 percent of taxpayers come out ahead. A refunded carbon tax is basically large-scale wealth redistribution from the biggest fossil fuel users to middle- and working-class citizens. This kind of ​“fee-and-dividend” framework is endorsed by the Climate Leadership Council (centrist/​bipartisan elites), the Citizens’ Climate Lobby (left-leaning grassroots campaigners), and one-time presidential candidate Andrew Yang, though they differ on important details. The logic of the policy is compelling to proponents — and to many people when they first hear about it — and they feel deeply confident that it will compel the public too. The evidence on that, however, is mixed. Do refunds increase the popularity of carbon taxes? At last, some field research. There are numerous studies showing that, in a polling or focus-group setting, the inclusion of refunds increases public support for a hypothetical carbon tax — see here and here, among others. But that kind of polling has not translated into victories in, for example, Washington state, where a fee-and-dividend policy lost badly in a public referendum in 2016. More to the point, because there have been so few fee-and-dividend policies implemented in the real world, there’s been very little field-testing of the public’s actual response to it. That brings us to a new paper in the journal Nature Climate Change by political scientists Matto Mildenberger (UC Santa Barbara), Erick Lachapelle (University of Montreal), Kathryn Harrison (University of British Columbia) and Isabelle Stadelmann-Steffen (University of Bern). They do something novel: look at public opinion in places where carbon fee-and-dividend policies have been implemented. It turns out there are only two. Switzerland established a rebate program in 2008. The carbon tax reached 96 Swiss francs (about $105) per metric ton in 2018; about two-thirds of the revenue is rebated on a per capita basis, with everyone (including children) receiving an equal share. Canada established a rebate program in 2019 as part of its national carbon-pricing strategy. So far, the scheme covers four of 10 provinces, with more than half of the national population. The price was initially set at 20 Canadian dollars (about $16 in U.S. dollars) a metric ton, rising to CA$50 by 2022; recently the government released a new schedule that would target CA$170 by 2030. The refund (technically, the ​“Climate Action Incentive Payment”) is based on the number of adults and children in the household, with a 10 percent boost for rural households. It is highly progressive; 80 percent of households get more back than they pay. The Nature Climate Change paper looks at public opinion in both countries. In Canada, it draws on a longitudinal study, which surveyed the same residents — ​“from five provinces, two subject to the federal carbon tax (Saskatchewan and Ontario), one with provincial emissions trading (Quebec), and two with provincial carbon taxes (British Columbia and Alberta)” — five times from February 2019 through May 2020, during which time the scheme was proposed, debated, passed and implemented. In Switzerland, the paper draws on a survey of 1,050 Swiss residents in December 2019. So what do these surveys tell us? It’s not great. Refunds don’t change opinions much; many recipients don’t even know they exist In Canada, throughout the period in which the refund was hotly debated, passed and implemented, public approval…didn’t change much. What’s more, opinions on the policy were divided primarily not by who got a refund and who didn’t, or who got a bigger refund. They were divided by (say it with me) partisanship: By wave 5 [of the survey], 75% and 81% of Liberal supporters in Ontario and Saskatchewan respectively supported carbon pricing, compared to 32% and 13% of Conservatives in these same provinces. Perhaps more importantly, Canadians remain confused and in many cases totally unaware of carbon refunds. When asked whether they got one at all, ​“many Canadians did not know, including 17% in rebate provinces and between 33% and 36% in non-rebate provinces.” When asked how big their carbon refund was, many in non-rebate provinces reported positive amounts, while those who did receive one underestimated it by as much as 40 percent on average. ​“Only 24% of Ontario respondents and 19% of Saskatchewan respondents estimated a rebate amount falling within the correct $100 dollar range of their true rebate.” (Perhaps unsurprisingly, Conservatives underestimated their rebate more than Liberals did.) You might think, well, Canada’s program is new. What about Switzerland, where they’ve been receiving rebates for over a decade? It’s…even worse. Only 12 percent of Swiss respondents know that part of the carbon revenue is refunded; 85 percent did not know they’d gotten a refund at all. D’oh! Additional information about refunds often doesn’t help You might think, well, the problem is how these countries administer their refunds. In Canada, it’s a line on your tax return. In Switzerland, it’s a discount on your health insurance premiums. Both are clearly marked, but lots of people don’t exactly scrutinize those documents and keep track of every line item. Surely support would rise if people are made aware of the refund they are receiving, yes? Er, no. In both countries, some survey respondents were given individualized rebate information — that is to say, they were shown, on the documents in question, exactly how much they had received in annual carbon refunds. In Canada, this treatment did not raise support for carbon pricing at all. In fact, respondents who were shown what they received were less likely to believe that they had been made whole (this trend was also more pronounced among Conservatives). “Canadians who learned the true value of their rebates,” the paper reports, ​“were significantly more likely to perceive themselves as net losers, even though most Canadians are net beneficiaries.” D’oh! Maybe Switzerland? There, information about respondents’ own past rebates mildly increased support for the current policy (by ​“around one-fifth of a standard deviation”), but it did not increase support for an increase in the tax at all. And in fact, in a June 2021 referendum, the Swiss voted against an increase in the tax and the rebates. In short, the available evidence suggests that carbon refunds don’t do much to reshape public opinion on carbon taxes, even among voters with accurate information about the refund they receive.