Understanding Support for Inefficient Environmental Policy Instruments

Chenxi Jiang, Maximiliano Lauletta, Ro'ee Levy, Joseph S. Shapiro and Dmitry Taubinsky

No 21443, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Many governments use environmental standards rather than more cost-effective market-based instruments like pollution taxes or cap-and-trade markets. Using a nationally representative survey experiment, we study whether and why limited understanding of economic principles helps explain this practice. Holding environmental impacts constant, respondents prefer standards over market-based instruments, and prefer producer taxes and cap-and-trade over consumer taxes. These preferences reflect consumers’ beliefs about how these policies will affect electricity bills. Respondents also prefer the weakest environmental targets for consumer taxes and the strongest targets for standards, which suggests that policymakers face a tradeoff between policy stringency and cost effectiveness. A separate survey of environmental economists shows that they have strikingly different beliefs about the effects of environmental policies than the respondents in our representative survey. For example, typical respondents—in contrast to environmental economists—believe that environmental standards increase consumer energy bills less than market-based instruments do. Educational videos on pass-through and cost-effectiveness of policies affect policy support and close some of the gap between nationally representative respondents and experts, which suggests that economic literacy is a factor in voters’ preferences.

Keywords: Cap-and-trade; Pigouvian tax; Climate change; Environmental standards (search for similar items in EconPapers)
JEL-codes: C83 D83 D9 H23 Q48 Q50 Q58 (search for similar items in EconPapers)
Date: 2026-05
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