Behavioral Public Choice and the Carbon Tax

In response to the historic Paris Agreement on climate change and to the Environmental Protection Agency’s recently finalized Clean Power Plan, economists and other climate policy experts have renewed the call for the United States to adopt a carbon tax. Opposition among the public presents a major obstacle. While a majority of the public supports government action on climate change, most people favor the use of “green�? subsidies and command-and-control regulations—a fact that frustrates economists of all political stripes who contend that a carbon tax would be much cheaper and more effective. This Article argues that a cognitive bias known as opportunity cost neglect pervades the public’s thinking about climate policy instruments, causing people to ignore the hidden costs of subsidies and command-and-control and, for that reason, to support these less efficient alternatives to the carbon tax. The Article will help proponents of the carbon tax better tailor their advocacy efforts. The Article also contributes to the burgeoning literature on behavioral public choice, which shows how the cognitive biases of political actors (including voters) influence the law. In addition, the Article points to the possibility of a Pyrrhic victory for conservative policymakers who oppose the carbon tax. Rather than averting major government action on global warming, defeating the carbon tax will very likely facilitate adoption of more costly substitutes that the public strongly favors as a result of cognitive bias. In that respect, the Article lends support to recent proposals by a small but growing group of conservative scholars who argue for a policy swap in which conservatives agree to a revenue-neutral carbon tax in exchange for support from environmentalists for abandoning the government’s current regulatory approach. The Article also suggests that conservative policymakers rethink their position on the carbon tax given that the states are currently considering which policy options to pursue in satisfying their respective obligations to reduce carbon emissions under the Clean Power Plan.