When Politics Constraints Carbon Pricing, Part 2: 6 Tips for Improving Climate Change Policy

How to improve on a politically-constrained carbon price?

First, policy makers should ... strive to mitigate climate-related externalities while ensuring (1) that the policy is welfare-improving (i.e., the social costs of mitigating climate-related externalities do not exceed the social benefits) and (2) that the policy does not violate one or more political economy constraints (i.e., the private costs of mitigating climate-related externalities do not exceed the various political economy constraints on policy making).

Second, there might be several policy measures that exhibit superior economic efficiency and environmental efficacy compared to both doing nothing and simply trying to implement a carbon price that will inevitably run right into binding political constraints.

Third, paying careful attention to the way voters and other constituents view the the costs of different policy measures is ... essential.

Fourth, the ideal policy is unlikely to be one that ignores the political constraints arising from industry structure, and thus runs into fierce political resistance. 

Fifth, for example, policies that can be credibly linked to public health co-benefits (which can be very large), energy security benefits, or economic development and employment benefits for key constituencies could improve public support for such policies.

Sixth, public campaigning that can raise support for climate policies in key constituencies can relax political constraints, although such campaigning must be pursued in a way that doesn’t simultaneously increasing opposition in other constituencies (i.e. doesn’t backfire). 

Finally, and perhaps most importantly, the use of the revenues generated by a carbon price may ultimately be just as important as the level of carbon tax itself (if not more so). How revenues are used can dramatically impact both the political support for the carbon price itself and improve the environmental efficacy and economic efficiency of the policy.

When Politics Constraints Carbon Pricing, Part 2:  6 Tips for Improving Climate Change Policy