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To motivate public participation in climate change mitigation, both "carrot" policies that create positive incentives for mitigated carbon and "stick" policies that create negative incentives for emitted carbon have been widely applied. Given the joint deployment of these measures, a key question is whether they are compatible with each other. Focusing on the Low-Carbon Reward Scheme (LCRS) and carbon taxes, two prominent proposals on China's climate policy agenda, this study evaluates how one incentive policy affects public support for the other. The results of a large survey experiment with Hangzhou residents indicate a two-way crowding-out effect, wherein introducing the LCRS diminished support for the tax, albeit primarily among LCRS proponents, and introducing the tax reduced support for the LCRS. Aligning with the proposed account, crowding out was driven by a decrease in policy effectiveness and fairness perceptions. These findings reveal a contradictory relationship between carrot and stick policies at the citizen level and illuminate the underlying mechanism. • Both carrot and stick policies are applied to motivate climate mitigation behaviors. • We identify a two-way crowding-out effect between these policies in public opinion. • Introducing a stick (carbon tax) reduces support for a carrot (low-carbon reward). • Introducing a carrot reduces support for a stick among people favoring the carrot. • Crowding out is driven by weakened policy effectiveness and fairness perceptions. [ABSTRACT FROM AUTHOR]

Sustainable socio-economic development requires a global reduction of greenhouse gas emissions. We utilize an incentivized experiment to map the preferences of 'policymakers' over climate actions of 'decision-makers'. Our design guarantees that these preferences are unaffected by selfish motives such as a concern about being re-elected or an unwillingness to pay for the greater good. Few of our impartial policymakers choose interventions that leave the autonomy of decision-makers' completely untouched. The choice patterns of those who intervene suggest that policymakers care not only about minimizing emissions, but also about how emissions are reduced. Policymakers strongly prefer pricing policies over capping emissions, and among the pricing policies, they prefer those that include voluntary carbon offsets, even if this leaves considerable scope for decision-makers to selfishly emit CO 2. The reason is that policymakers expect decision-makers to voluntarily offset some of their emissions at their own cost, and believe that this would eventually improve the outcome in terms of both emissions and the decision-makers' profit relative to a standard carbon pricing policy (without offsetting). Our decision-making data confirm this expectation. [ABSTRACT FROM AUTHOR]

Economists agree that carbon taxes are the most effective solution for climate change mitigation. But where do fossil fuel companies stand on carbon taxes? I analyse how the 100 largest oil and gas companies communicate on carbon taxes. Surprisingly, I find that 54% of companies that have a policy on carbon taxes support them (78% for the 50 largest). This is puzzling as an effective carbon tax should reduce the revenues and reserve value of fossil fuel companies. To understand this paradox, I offer non-mutually exclusive reasons why fossil fuel companies might support carbon taxes. Oil and gas companies could use a carbon tax to get rid of the competition from coal, create a level playing field and remove regulatory uncertainty. Or they think that these taxes will not affect them because demand for oil and gas is inelastic or that international coordination will fail and lead to leakages. Finally, it could be that this is simply a communication exercise. A carbon tax helps them shift the responsibility from fossil fuel companies to customers, voters and elected officials. [ABSTRACT FROM AUTHOR]

It is argued that the political feasibility of climate mitigation policies depends heavily on their distributional effects. This paper therefore studies the distributional effects of the European Commission's Fit-for-55 package at the household level in seven EU countries, analyzing a carbon tax on transport and heating fuels as well as variations of a lump-sum refund. Based on the resulting income distributions, different inequality measures are computed. The paper aims to extend previous methodological approaches by including inequality measures such as the Theil index and Atkinson index and comparing the results of carbon taxes on transport and heating fuels for seven EU countries in a consistent manner. I find that a household-size specific lump-sum refund not only mitigates the negative distributional effects of a carbon tax but also reduces overall inequality compared to the baseline scenario without a tax. [ABSTRACT FROM AUTHOR]

While the economic case for carbon pricing is compelling, public support for it remains low. Using a stated-choice experiment with a sample of 6000 German household heads, we examine how their fairness preferences influence support for carbon taxes under different revenue uses. We find that respondents who prefer green spending are more likely to support a carbon tax, but the support diminishes considerably for higher tax rates – in contrast to respondents who support social cushioning. When restricted to options for direct revenue redistribution, Germans prefer lump-sum payments over directing payments to the poorest or the most affected. Preferences over these options depend both on genuinely different concepts of fairness and economic circumstances. Our findings have implications for advancing carbon pricing, as its support can be increased substantially when designed according to citizens' fairness preferences. [ABSTRACT FROM AUTHOR]

• Optimal climate change mitigation mostly focused representative agent framework. • Incomplete insurance markets adds realism and new mechanism for welfare. • Poorer households prefer stronger mitigation policies even absent redistribution. • Redistribution provides extra insurance. • Representative agent framework likely to underestimate welfare impacts of mitigation. Policy makers concerned with setting optimal values for carbon instruments to address climate change externalities often employ integrated assessment models (IAMs). In the past, these tools have relied on representative agent assumptions or other restrictive behaviour and welfare aggregations. However, there is an important trend in the economics of climate change towards including a greater degree of heterogeneity. In the face of global inequality and significant vulnerability of asset poor households, we relax the complete markets assumption and introduce a realistic degree of global household inequality. In contrast to the representative agent framework, we find that a household's position on the global wealth distribution predicts the identity of their most-preferred carbon price. Specifically, poor agents prefer strong public action against climate change to mitigate the risk for which they are implicitly more vulnerable. We find that the carbon tax fills the role of insurance, reducing the volatility of future welfare. It is this role that drives the wedge between rich and poor households' policy preferences, even in the absence of redistribution. Taking into account the risk channel, we derive an optimal tax value four times larger than standard estimates from representative agent models. [ABSTRACT FROM AUTHOR]

Through its NDC, Brazil pledged to reduce its GHG emissions by 43% below 2005 levels in 2030, respectively. Carbon pricing could play a key role in meeting this objective. However, a range of issues can emerge when introducing it. Among these issues, the distributional impact has been frequently highlighted as an obstacle to the public acceptance of such a mitigation policy. This paper examines the short-run welfare and emission effects of an economy-wide carbon tax on Brazilian households. The distributional impact is examined by estimating the tax burden relative to annual expenditures and changes in total GHG emissions across income levels, using tax rates consistent with the Paris Agreement and considering a lump-sum rebate that keeps the government revenue neutral. For this, we calculate energy-related GHG emissions coefficients from fossil fuel burning for the whole household consumption basket, and price and expenditure elasticities which account for the zero-expenditure and underdeclaration problems. Our results indicate that the incidence of the carbon tax is effective in reducing emissions in the short run, but imposes welfare losses, especially on the poor. The consideration of compensation mechanisms is critical when designing this type of environmental tax, specially in the context of a highly complex tax-system. [ABSTRACT FROM AUTHOR]