Do dividends make carbon taxes more popular? Apparently not.

Arguments over carbon taxes go back as far as discussions of
climate change itself. Economists have long insisted that pricing
carbon is the most efficient way to reduce greenhouse gases. For
years, they hijacked the climate discourse, with untold money and
effort put behind proposals for various increasingly baroque
pricing schemes, to very little effect.


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 the political intensity is with
opponents. (More 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 who first hear about it — and they feel deeply confident
that it will compel the public too. The evidence, 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 the 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 tonne 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
U.S.) a tonne, rising to CA$50 by 2022; recently the government
released a new schedule that would target CA$170 by 2030.


The refund, or 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 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 ignorant about 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.)


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, a portion of 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 rebates mildly
increased support for the current policy (“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.


Caveats


Perhaps support for these policies will increase over time.
Perhaps it would increase if voters didn’t receive just one-time
information about refunds, but consistent, repeated information.
Perhaps it would increase if the rebates were sent via check
rather than buried in bureaucratic documents. (We’ll find out
about this — Canada is switching to a checks-by-mail system this
summer and researchers are planning more surveys.) Perhaps
support would grow if the rebates substantially increased in
size.


We can’t know what would happen in these counterfactuals;
anything is possible. We can’t know whether some sort of carbon
refund scheme might catch on and grow popular at some point. But
the current evidence is fairly discouraging for the thesis that
rebates will ipso facto increase support for carbon pricing.


The lessons of this research


There was a popular theory among pundits (myself included) when
the Democrats took control of the federal government in 2020: the
one thing you can’t propagandize voters on is their own lives. If
Democrats could improve voters’ social and economic circumstances
in tangible ways, it would cut through the disinformation haze
and increase public support.


In retrospect, I think that was naive. You can propagandize
voters about their own lives. Or, to put it more academically,
all of our experiences, even our experiences of our own life
circumstances, are mediated. We interpret them through schema and
worldviews shaped by our tribes and the stories they tell. These
days, we get that stuff through electronic media, with which the
world is saturated.


Most people are not aware of exactly how much they pay in gas or
carbon taxes a year. Most people do not closely scrutinize their
tax returns or health insurance forms. And above all, most people
are unaware that they already receive a variety of government
benefits, which are often buried in the tax code or otherwise
hidden from view. (The best book on this is Suzanne Mettler’s The
Submerged State: How Invisible Government Policies Undermine
American Democracy.)


Outside of a focus group, out in the real world, people’s
assessments of a carbon refund are less likely to be informed by
careful economic cost-benefit analysis than they are to be
mediated by identity affiliation. And these days, identity has
been subsumed by partisanship.


“[I]n the two federal-tax provinces, supporters of the Liberal
Party of Canada were 3 to 8 times more likely to support the
carbon tax than Conservative Party supporters,” the paper
reports. “Similarly, in Switzerland, left-leaning voters were 48%
more likely to support rebates relative to right-leaning voters.”


People’s assessments of a policy tend to echo their tribe’s
assessment, which they absorb through media and peers, not
through an accounting spreadsheet. The amounts of money generally
being discussed in carbon refund policies are not large enough to
be life-changing for voters. The signal is not big enough to
break through the noise of partisanship.


Mildenberger summed it up for me over email:


The entire [carbon refund] logic requires that large parts of the
public understand that they make more money from their cheque
than they are paying in taxes. But this is not what we see in
Canada. And it's no surprise. As long as one group of actors
spends its time sensationalizing and dramatizing the costs of
carbon taxes, then many people will think they are not being made
whole. Why should we expect — in an American society where even
basic facts are politicized and vast portions of the public
accept outright misinformation — that carbon taxes will be immune
to this? What matters is not the actual material reality
of people's circumstances, but their perceptions of those
circumstances. (my emphasis)


That last line squarely identifies something that Democrats have
long been loath to accept. In a sense, carbon refunds are the
latest expression of a long-time technocratic dream: that a
policy can be so sensible, such a net benefit for so many people,
that it will transcend politics. It will argue for itself and its
logic will be irrefutable.


But if we’ve learned anything in these past few years (and I fear
we haven’t), it’s that nothing transcends politics. Nothing is
experienced directly by voters, not even money showing up in
their bank account. Everything is mediated.


Politics in the US has been nationalized and fully subsumed by
the culture war. No policy, no matter how cleverly designed, can
get around that. In our present partisan and information
environment, the measurable effect of a carbon refund on voter
finances may carry less weight than advocates hope.


This is a public episode. If you'd like to discuss this with other
subscribers or get access to bonus episodes, visit
www.volts.wtf/subscribe