One of the simplest ways to reduce carbon emissions is to put a price on them, gradually ratcheting up the price to induce conversation and emissions-free technologies. In turn, the simplest way of imposing that price is by taxing emissions. But taxes are typically unpopular, as people are very sensitive to the cash they extract.
A rebate plan alongside carbon taxes makes those taxes less painful. Rather than putting the tax’s income into the national budget, the revenue is divided up and returned to citizens. The division is often done on a per-capita basis, which turns out to be progressive, since lower-income individuals tend to end up producing fewer carbon emissions but get an equal share of the rebate.
While a rebate sounds great on paper, only a couple of countries have actually tried it. A new study looks at these countries more carefully and finds that most citizens underestimate the rebate they get, and opinions on the taxes have become politicized.
The case in Canada
Canada is one of the countries with a tax-and-dividend program, although the program is complicated. Each of its provinces has the option of implementing its own program for putting a price on carbon emissions, and a number of provinces have. But, in the absence of that, a federal tax-and-dividend plan will kick in. Complicating matters further, at least one province (Alberta) started its own program, revoked it, and then defaulted to the federal system.
The rebate from the tax is done on a per-household basis (only one person per household gets the payment) but is based on the total number of people in the household. The rebate never shows up as an actual payment; instead, it’s given as a credit on annual income taxes. As it’s structured, 80 percent of Canadian households gets a rebate that’s larger than what they paid via the carbon tax.
The researchers behind the new work took surveys of Canadians in four provinces. One was Quebec (which has a provincial cap-and-trade scheme) and another was Alberta (which changed its scheme partway through the study period). But the researchers also surveyed in Ontario and Saskatchewan, which both used the federal tax-and-dividend plan.
A couple of things were clear. One is that support for the program is heavily politicized. Over 75 percent of Liberal Party voters supported the federal programs in the two provinces that were using it. Among Conservative Party voters, support was only 32 percent in Ontario and a tiny 13 percent in Saskatchewan. Controlling for the amount of tax people had paid made little difference to these figures.
The second point that was obvious was that people really weren’t paying attention to the rebate portion of things. In provinces where rebates went out, 17 percent of Canadians were unable to remember if they had received one. Numbers were even higher in non-rebate provinces, where over 10 percent of the respondents claimed they had received the rebate.
People who had actually received the rebate consistently underestimated how much they received, with Ontario residents being 9 percent low, and those in Saskatchewan averaging 29 percent below the actual value. Put differently, only about 20 percent of Canadians who received rebates were able to guess the amount within CA$100 ($79). Unfortunately, informing people what their rebate actually was didn’t change levels of support for the tax-and-rebate scheme.
Again, the problem was politicized: people who back the Conservative Party were more likely to underestimate their rebates and were more likely to continue to do so even after they were informed of its actual amount.