Carbon pricing acceptance – the role of revenue recycling among households and companies in Norway

Anders Dugstad, Kristine M. Grimsrud and Henrik Lindhjem

Climate Policy, 2024, vol. 24, issue 10, 1365-1380

Abstract: Effective carbon taxation is essential for achieving the green transition. However, there is typically stiff opposition to carbon taxation due to adverse equity and other impacts. Hence, it is essential to get a better understanding of which factors, including the use of tax revenue, can increase acceptability. To date, stated preference methods, rarely used to analyse this issue, have focused only on households. We conduct two national choice experiment surveys of Norwegian households and companies. The experiments include carbon taxes on transport fuel and associated emission reductions and different revenue recycling options as attributes. We find that both groups are more accepting of higher tax levels if the revenues finance climate change mitigation efforts. There is some heterogeneity among the groups with regard to using revenues to reduce different dimensions of inequality. Simulating policy scenarios, we find acceptance for the highest carbon tax among both groups when the revenues are used both to finance climate change mitigation efforts and to reduce rural-urban inequalities. This policy option points to an acceptable carbon tax close to an estimated level necessary for reaching the most ambitious climate target set by the Norwegian government. In Norway, further research should explore whether an effective carbon tax level could be achieved with modest efficiency loss, while also alleviating inequality.Policymakers need a better understanding of the factors, including the use of associated tax revenues, that increase carbon tax acceptability in order to ensure that the tax is high enough to effectively reduce emissions.Simultaneously considering levels of carbon tax acceptance among households and companies could increase the chance of implementing higher, more effective carbon tax levels by identifying mutual interests and points of divergence.Our results show that companies and households concur to a certain extent on the most socially acceptable policy option; earmarking carbon tax revenues to finance climate change mitigation efforts and to reduce rural-urban inequalities.

Date: 2024
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DOI: 10.1080/14693062.2024.2401853

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