EAERE Magazine - N.16 Spring 2022__

EAERE Magazine / n.16 Spring 2022 - Climate Impacts and Adaptation
Why do citizens and economists disagree on
carbon taxation?
For most environmental economists, the logic of
applying a tax on greenhouse gas emissions as
the core climate policy instrument is compelling 1
to the point where we struggle to understand
why the rest of the world demurs. But they do.
“To tax and to please, no more than to love and
be wise, is not given to men”. Thus wrote the
Irish statesman and writer Edmund Burke in
1774. What was true 248 years ago is still true
today - logic runs up against the Burkean reality
– it is hellishly difficult in practise to implement
a carbon tax of substance, meaning a tax that is
sufficiently high and inclusive to make a difference
at scale in terms of emissions reduction.
In: “Why do citizens and economists disagree
on carbon taxation?” Tomas Douenne (University
of Amsterdam) draws on his PhD research
to deepen our understanding anchoring his assessment
on the ‘Yellow Vests’ rebellion in 2018
against an increase in the carbon tax in France.
It is an important paper because it interrogates
the granularity of the oft proposed solution –
use some of the revenues accruing to compensate
the poorer ‘losers’- and concludes that implementing
the practice in ways that does indeed
compensate the losers is very challenging to
achieve.
1 It immediately sends a signal to emitters that: the capacity of the atmosphere to absorb more emissions is very scarce and getting scarcer;
every ton of emissions will cost, thereby incentivising emissions reduction, and this incentive operates 24 hours a day, 365 days a year; the polluter
pays; revenues are generated that can be used to reduce other taxes, or be spent for other purposes, including supporting investment in emissions
abatement and compensating losers. It is cost-effective - it incentives discovery of abatement choices by polluters, and allows emitters to decide
how much to adjust, so that the effort will be undertaken where the costs of doing so are lower. And it has the huge analytical advantage of
expressing policy effort in one variable, which makes modelling choices dramatically easier. Finally, it has the advantage of integrating climate policy
into economic policy which means that, rather than being institutionally isolated in an often relatively powerless Ministry for Environment, it is
embedded in the Ministry of Finance, which in every government is at the heart of decision-making and resource allocation. And the same applies
to companies – a carbon tax moves corporate climate policy from the boiler room to the board room.
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