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In a front page interview in Berlingske Business from late November, Postdoc Alice Pizzo is interviewed about her research on carbon taxes and consumer behavior. In the interview, she outlines both expected and unexpected findings relating to consumer responses to CO2 taxes imposed to control consumption.
The findings are presented in the paper “Carbon Taxes Crowd Out Climate Concern: Experimental Evidence from Sustainable Consumer Choices”, authored by Alice Pizzo with MSC colleagues Jan Bauer and Lucia Reisch, and Christina Gravert from the University of Copenhagen.
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Key findings
The paper dives into how carbon taxes influence consumer behavior in relation to their price effect. While carbon taxes generally reduce demand for high-carbon goods, they can also unexpectedly crowd out the intrinsic motivation driven by climate concerns, especially among those who are already concerned for the climate. Key findings include:
- A higher carbon tax does lower demand for high-carbon products. However, when no actual tax is applied, but consumers are explicitly made aware which product would be taxed, they avoid high-carbon options more than when a similar import tax is applied.
- When positive taxes are applied (20% to 60%), this relationship flips: consumers show a relatively higher willingness to pay for high-carbon goods under a carbon tax compared to a comparable import tax.
- For highly climate-concerned individuals, the tax seems to “license” them to feel they’ve done their part, resulting in a willingness to indulge in high-carbon options.
- A sufficiently high tax level is needed for the price effect to overcome this licensing effect.
Implications for Policy
These findings carry a cautionary tale for policymakers. A salient but insufficient carbon tax might dampen intrinsic motivations, potentially weakening climate efforts if climate-concerned individuals are to license their behaviors. Specifically, introducing too low prices on carbon could even increase aggregate demand if the crowding out exceeds the price effect. This underscores the importance of finely calibrating carbon tax policies to avoid counterproductive effects.
The study is funded by Novo Nordisk Foundation, as part of BEACON Behavioural Insights for a Circular Society project, which investigates consumer behavior to address critical challenges to reach a sustainable lifestyle to support the building of a Circular Society.
Read more
Find the interview in Berlingske here: De klimabevidstes aflad. Studie om CO₂-afgifter kaster overraskende nyt lys på forbrugernes adfærd (27 November, 2024)
Find the working paper here: Alice Pizzo, Christina Gravert, Jan M. Bauer, Lucia Reisch, “Carbon Taxes Crowd Out Climate Concern: Experimental Evidence from Sustainable Consumer Choices”, CEBI Working Paper Series, working paper 16/24.
For more information, contact Alice Pizzo, ap.msc@cbs.dk.
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