2443. Americans Appear Willing to Pay for a Carbon Tax Policy

By Michael Greenstone, The New York Times, September 15, 2016

Climate march in Sydney, Australia

The stumbling block in Congress for confronting climate change has perpetually been the economic challenge. There has been little support for paying to reduce greenhouse gas emissions.

But now, there is some evidence of a quiet undercurrent of support for a carbon policy, whether it be a tax, cap-and-trade or regulations.

The Energy Policy Institute at the University of Chicago (EPIC) — which, in full disclosure, I direct — and The Associated Press-NORC Center for Public Affairs Research released a poll Wednesday on how Americans feel about various issues related to climate and energy.

One of the questions looked at willingness to pay for a carbon policy. The results, on the surface, are not very encouraging to any of its advocates: 43 percent of Americans aren’t willing to pay anything to fund such a policy.

Most people would infer from this that putting a price on carbon is challenging. And, politically, it is. But buried in the polling data is a striking revelation: Many people are willing to pay real money for a carbon policy. In fact, on average, Americans appear willing to pay more than a robust climate policy is projected to cost.

Let’s take a look at the results of the poll. Respondents were asked if they would support a fee on their monthly electricity bill to combat climate change, and they were offered fees at various levels: $1, $10, $20, $30, $40 and $50. (Each household was asked about only one of these levels.) The responses were that 57 percent would pay at least $1; 39 percent would pay at least $10; 29 percent would pay $20; 24 percent would pay $30; 17 percent would pay $40; and 20 percent would pay $50.

Yes, 43 percent of the people surveyed said they were unwilling to pay even $1 per month, and that tells us something about the political challenges facing adoption of a climate policy. But the intensity of preferences of the other 57 percent also tells us something important.

Specifically, these responses can be used to infer how much people value addressing climate change. To give you a flavor of the approach, take the 39 percent of households that are in favor of at least a $10 fee and the 29 percent that are in favor of at least a $20 fee. Doing some back-of-the-envelope calculations, I find that 10 percent (39 percent minus 29 percent) of households would favor a fee between $10 and $20. I then assign the midpoint — $15 — to this 10 percent of the population. I carry this approach through for the rest of the responses.

The net result is that, on average, American households are willing to pay $15 to $20 per month more on their electricity bill. The $15 is a lower bound because it assumes that the entire 20 percent of respondents who accept at least $50 are willing to pay $50, while the $20 figure assumes that this group is willing to pay $75 on average.

The resulting average willingness to pay is higher than what the Congressional Budget Office estimated the Waxman-Markey cap-and-trade bill for greenhouse gas emissions would have cost households (economywide, not just for electricity) had it passed the Senate back in 2009.

There are some limitations to this exercise that are worth noting. It’s a hypothetical question, so people might like to think they might pay more than they really would. Even if this poll has accurately caught a measure of societal willingness to pay, it is not the same thing as how people or their elected representatives will vote.

What this finding does mean is that the possibility of a robust climate policy may not be as remote as the conventional wisdom suggests. The foundation for paying for such a climate policy appears quite strong — much stronger than I thought when we designed the survey.

The question that remains unanswered: If the economics are not as big a problem as we thought, then will the politics follow?