The Political Viability of Carbon Taxation

Economists of nearly all methodological and ideological stripes concur that the best way to attempt to stave off the worst impacts of climate change is through some form of taxation on the carbon content of fossil fuels. This idea has been around for a long time. Its latest manifestation includes some form of carbon tax in order to raise government revenue as part of a grand bargain to avoid the pending fiscal cliff.

Of course, such taxes are almost invariably dismissed as political impossibilities, leading to consideration of sub-optimal policy back-ups. But is some form of carbon taxation really a political non-starter?

Findings from the Fall 2012 National Surveys on Energy and Environment (NSEE), a partnership between the University of Michigan and Muhlenberg College, suggest that there may be greater support for such a step than is commonly assumed. It found that a narrow plurality of respondents support “a policy to reduce greenhouse gases by increasing taxes on the burning of fossil fuels such as coal, oil, and natural gas for energy.”In this scenario, 29 percent were strongly supportive, 19 percent were somewhat supportive, 13 percent were somewhat opposed, and 33 percent were strongly opposed. See the CLOSUP/NSEE report released today.

This hardly suggests a huge groundswell of support. Indeed, support drops further when a specific price tag for the tax is added, one that would increase fossil fuel costs by 10 percent. But these findings are generally more supportive of a carbon tax than in previous years and in most comparable studies that ask some version of this question.

In turn, it is also quite possible that public support for a proposed tax can be influenced mightily by how the revenue is used. Dwight Eisenhower realized this nearly a half-century ago in linking the original federal carbon tax, via the gasoline excise tax, to development of highway infrastructure. And governors do this all the time on a wide range of taxes.

So the NSEE posed a scenario in a separate question whereby respondents were informed that a carbon tax was established but they were given the option to either repeal the tax or instead pursue one of five distinct options for revenue use.

Guess what? Tax repeal only finished second, with 21 percent support. The runaway winner was using all the funds for renewable energy research, with a total of 36 percent support. The only other option to crack double-digits was using all the funds to reduce the federal deficit, placing third with 16 percent support.

Table 5

Preferences for Use of an Increased Federal Tax on Fossil Fuels

Question: “Now, if the federal government enacted a tax on fossil fuels such as coal, oil, and natural gas, which of the following options do you most prefer?”

The NSEE found a very similar set of responses when exploring possible increases in the federal gasoline excise tax, which has remained unchanged at 18.3 cents per gallon since 1993. Perhaps the politically unthinkable step of raising prices on fossil fuel use becomes more feasible if the public weighs possible revenue uses as part of the bargain, grand or otherwise.