Carbon tax finds bipartisan support when funds are delegated to a specific cause

Jul 22, 2014

Some people think a tax on carbon dioxide is a good market-based approach to tackling climate change because it would require larger companies, such as power plants, to pay for their emissions. But it's a tough sell politically.
Some people think a tax on carbon dioxide is a good market-based approach to tackling climate change because it would require larger companies, such as power plants, to pay for their emissions. But it's a tough sell politically.
Credit Steve Carmody / Michigan Radio

Economists often argue that we should use the market to fight climate change. Cap-and-trade legislation died in Congress back in 2010.  Some people think a tax on carbon dioxide is a better solution, but that would require large companies to pay for their carbon emissions.

“This would basically tax any energy use by large industry or individual citizens filling up at the pump," said Barry Rabe, a professor at the Gerald R. Ford School of Public Policy at the University of Michigan.  Rabe is also the director of the school's Center for Local, State and Urban Policy.  He conducted a national survey on the carbon tax to see what variables could make the tax more attractive to voters.   

Where's the money going?

In his report on the survey, Rabe and his team wrote that conventional wisdom says a carbon tax is a political nonstarter.

"We tend, though, politically, to back away from this option, congressionally, at the state level, because people don't like to pay taxes," he said.

"And I think it's generally acknowledged... that from an economics perspective if one wants to deal with the issue of climate change, a direct carbon price, perhaps most easily achieved through a carbon tax, is the best way to go."

"The biggest winner was taking the money from a carbon tax and putting that directly into renewable energy or alternative energy development. And in that case, we saw majorities of Democrats, Independents and Republicans - majorities - say that they would favor that kind of tax."

He adds that the term "carbon tax" has a negative connotation to it because it imposes an immediate and direct price on the consumption of fossil fuels. So the researchers decided to first confirm their suspicions that a carbon tax alone has little support. They asked, "How do you feel about a carbon tax?"  and  "How do you feel about a carbon tax with a certain price?"

"What we found was, again, initially there was strong, strong opposition across the board to the idea of a carbon tax," he said.

But then, the researchers wanted to know if public opinion would change if they stated how the revenue might be used.

"If government takes revenue away from a tax, government has revenue to be spent. And so, what we've been exploring is what happens if we say 'OK, government, we create this tax but we would be using this for X or Y or Z.' Do the numbers move at all?" Rabe said.

That's where he found that the numbers moved pretty significantly. "In some cases, amongst political constituencies that we might think are very, very hostile to any kind of a tax, much less one on carbon," he said. 

People care where the money goes

The researchers then offered survey takers three options: one was to put the funding directly into a renewable energy fund; the second option would be to put the money directly into deficit reduction; and the third would be to reduce other taxes basically dollar-for-dollar.

The researchers found that the deficit reduction option didn't move public opinion much at all.

"Folks really didn't shift in their view much if they knew the money was going to be used to reduce deficits," said Rabe. However, when they discussed the tax in the context of revenue neutrality, i.e., reducing other taxes dollar-for-dollar, the numbers really began to shift pretty substantially.

"The biggest winner was taking the money from a carbon tax and putting that directly into renewable energy or alternative energy development. And in that case, we saw majorities of Democrats, Independents and Republicans -- majorities -- say that they would favor that kind of tax."   

More from the survey:

  • A revenue-neutral carbon tax, in which all tax revenue would be returned to the public as a rebate check, received 56 percent support.
  • Only 38 percent of respondents supported a carbon tax when revenues would be used to reduce the federal budget deficit.
  • Support for a carbon tax stood at only 34 percent when no explanation of revenue use was given and dropped further to 29 percent when a specific cost was added.