Irrationality in Climate Policy: Implementation of a Carbon Tax Rebate in Canada

• In Event: Carbon Pricing Politics and Politics

Abstract

Carbon taxation is an environmentally- and cost-effective policy tool, but one that is notoriously challenging politically given visible and immediate costs. That has prompted calls to build public support by returning carbon tax revenues via lump sum “dividends” (Klenert et al, 2018), an approach taken in Canada in 2019. However, Mildenberger et al (2022) found that rebates did not build support for the carbon tax, as Canadians’ responses to the carbon tax were conditioned by partisanship, rather than facts. Still, others have pointed to delivery of the rebates via low-salience income tax credits. In response, the federal government moved to quarterly direct payments in 2022, but rebates are now deposited directly to bank accounts with cryptic entries that make no reference to carbon pricing.

This paper will consider two questions. First, drawing on our panel survey’s two final waves, before and after the shift to direct deposits in 2022, we will examine the impact of the transition to direct deposits on Canadian voters’ support for the federal carbon tax. Second, drawing on elite interviews, we will explore why a federal government that demonstrated political courage in adopting an unpopular carbon tax unpopular failed, not once but twice, to deploy visible rebates. Just as economists overestimate voters’ rationality in assessing the costs and benefits of carbon taxation, we find that political science theories of competing electoral and interest group pressures underestimate the political irrationality of bureaucratic politics.

Klenert et al (2018), “Making Carbon Pricing Work for Citizens,” Nature Climate Change 8:669

Mildenberger et al (2022), “Limited Impacts of Carbon Tax Rebates,” Nature Climate Change 12: 141.

Authors

• Matto Mildenberger, University of California Santa Barbara

• Erick Lachapelle, Universite de Montreal

• Kathryn Harrison, University of British Columbia