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Posted on Sustainabilitank.info on November 28th, 2008
by Pincas Jawetz (pj@sustainabilitank.info)

From:        petter.haugneland at cicero.uio.no
Subject: Study: Governments must explain the benefits of eco taxes
Date:           November 28, 2008

Study: Governments must explain the benefits of eco taxes

Environmental taxes are one of the few instruments that can have a
significant impact on global emissions. However, governments have a huge
challenge in communicating to the public how these taxes work, a new study
concludes.  

“People do not understand environmental taxes. If politicians don’t provide
better information about how these taxes work, it might not be politically
feasible to implement them”, says Steffen Kallbekken, researcher at Center
for International Climate and Environmental Research – Oslo (CICERO).

He continues:   “Without environmental taxes it will be much harder to meet climate
targets”.

***

Kallbekken recently completed a Ph.D. on environmental tax schemes, where he
looked at the trade-off between political feasibility and economic
efficiency.

In a laboratory experiment, participants voted on different environmental
tax schemes. They were asked which alternative would give the highest
welfare: A situation with an environmental tax in place, or a situation
without such a tax.

“By improving the environment and providing tax revenues that can be used to
benefit the public, environmental taxes can increase overall welfare”, says
Kallbekken. The experiment was designed to reflect this, so that imposing
the environmental tax would increase welfare.

However, only 23 percent answered correctly that the tax would increase
welfare.   Fully 45 percent believed that the highest welfare would be gained
if no tax was implemented.

“There seems to be a big divide between what economists recommend and what
people find acceptable. A main reason for this seems to be that people do
not understand how taxes can increase welfare”, says Kallbekken.

“Earmarking is not a popular tool amongst economists because it is not
efficient. However, it looks like it sometimes can be worth considering
because it can increase the political feasibility of taxation”, Kallbekken
explains.

The congestion charge in Stockholm is an example of how an environmental tax
can lead to increased welfare: During a trial period, traffic to the city
fell by 22 percent. Travel times during rushour dropped by nearly a third,
accidents with injuries fell, and emissions fell by 10 to 14 percent,
according to Lindsey (2007).

“The congestion tax was very controversial before the trial period. However,
as people experienced the positive effects of the congestion tax during the
trial period they adopted a more favourable view of the tax”, says
Kallbekken.

Polls found that the number of people likely to vote in favour of
permanently introducing the tax increased by 18 percent during the trial
period.

In the actual referendum after the trial period, the tax received a 52.5
percent majority, and the tax was permanently implemented.

“The Stockholm example shows that demonstrating the benefits of
environmental taxes can substantially increase public support”, says
Kallbekken.

This is in line with Kallbekken’s studies. When investigating how
politicians should respond to the public’s beliefs about environmental
taxation, he found that politicians need to give thourough information about
how such taxes lead to higher welfare.

“The politicans need to inform the public much better about the
environmental benefit of taxation, and they also need to show clearly and
credible how the revenues will be used. A trial period can be one way to
give the public this information by letting them personally experience the
benefits”, says Kallbekken.

“If informing the public is not sufficient to get the necessary political
support, politicians should consider different kinds of earmarking systems”,
he concludes.

Contact information:

Steffen Kallbekken, researcher, CICERO
Phone: +47 22 85 87 58
E-mail:  steffen.kallbekken at cicero.uio.no style=”text-align: center”>

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