For decades, economists have consistently argued for carbon pricing, which is nearly unheard of in their field. It’s not a difficult argument. When burning fossil fuels has no direct financial cost other than the fuel itself, everyone pays for the harm those emissions cause, including to crop yields, coastlines, health, and the people who are least accountable for the emissions in the first place. That implicit subsidy has been quantified by the International Monetary Fund at approximately $5.2 trillion worldwide, or roughly 6.5 percent of global GDP. It’s not a rounding error. The way the world economy prices its most important input is structurally distorted. In the purest economic sense, a carbon tax is just the adjustment of a price that has always been incorrect.

Numerous Nobel laureates are among the more than 3,500 economists who have signed letters endorsing carbon pricing. It is extremely uncommon for economists to reach such a consensus; they will disagree on nearly anything, including issues that have been resolved for a century. It is significant that conservative and left-leaning economists agree on this specific tool. When Sweden imposed a carbon tax in 1991, transportation-related CO2 emissions decreased by about 11% annually on average, while GDP per capita increased by more than 50% during that time. After the UK implemented a carbon price floor in 2013, coal’s proportion of electricity generation fell from approximately one-third to two percent in a matter of years. These are not projections or models. They took place.

And yet. Over a few years, what was meant to be a key policy accomplishment for the Trudeau administration in Canada turned into something that opposition leader Pierre Poilievre could sum up in three words: “Axe the Tax” and use to completely change an election cycle. There was a rebate system in place. Eight out of ten families received more rebates than they paid in carbon taxes, according to the parliamentary budget office. However, studies revealed that voters were unaware of the rebates, tended to undervalue them, and became less receptive to information about the rebates when exposed to political messaging regarding the tax. In the end, perception was much more influenced by partisanship than by the actual dollar amounts. It’s not a communication breakdown. In democratic politics, it is a structural aspect of the interaction between visible costs and invisible benefits.

IMPORTANT INFORMATION TABLE — THE CARBON TAX DEBATE

Observing this unfold in several nations gives the impression that the carbon tax has fallen victim to a trap that it partially created. Its visibility, directness, and presence at the gas pump and on the heating bill are what make it economically elegant, but they also make it politically vulnerable. The price of an automobile is increased by a regulation that increases manufacturing costs, but no one at the dealership believes that “this is the climate policy.” The carbon tax makes an announcement. It appears as a line item. It asks voters to put their faith in a rebate system that they neither requested nor fully comprehend, and it gives opponents a specific, concrete number to attach a slogan to.

The competitiveness argument adds an additional level of complexity that is often overemphasized in lobbying offices and underemphasized in economic papers. Some production simply relocates to areas where it is less expensive to pollute the air if one nation sets a price for carbon while its trading partners do not. The European Union’s Emissions Trading System has a border adjustment mechanism specifically designed to address this, so it’s not a knockdown argument against carbon taxes; rather, it’s a real constraint that gives industries a convincing reason to oppose it that goes beyond self-interest.

The field of economics may have overconfidently believed that the communication issue could be resolved. According to some researchers, there may not be a communication issue at all. They contend that the real factor influencing whether carbon pricing survives politically is trust in the government rather than the clarity of explanations, and that more information about complicated climate policy may actually cause more confusion rather than more support. Both Finland and Norway have maintained carbon pricing with comparatively little opposition; neither nation is particularly well-known for its voters’ extreme mistrust of public institutions. The lesson might be more about the minimum level of institutional trust needed for the policy to work than it is about how to explain the rebate.

In certain areas, cap-and-trade systems, which place a cap on overall emissions and allow businesses to exchange permits, have demonstrated somewhat greater political durability. This is in part because the expense remains ingrained in business choices rather than showing up on a household bill. Compared to Canada’s federal consumer price, Quebec has run one for years with much less political drama. Despite a convoluted history of overallocation and low prices in its early years, the EU’s system has been in place long enough to produce tangible proof of emissions reductions. Although “less efficient and politically viable” may consistently outperform “more efficient and politically dead” in practice, these systems are theoretically less effective than a simple carbon tax—the cap is somewhat arbitrary.

What will fill the void if carbon prices continue to decline is truly uncertain. The Canadian Conservatives pledged technology rather than taxes, but they did not specify which technologies or how they would be paid for. Although regulations can lower emissions, they are typically more costly per ton of CO2 abated and are not as effective at sending price signals throughout an entire economy as a carbon tax. According to the IMF’s analysis, eliminating fossil fuel subsidies and accurately pricing emissions would reduce global carbon emissions by about 28%, a figure that no single regulatory program can match. Depending on your perspective, the gap between what is politically feasible and what is economically feasible is either the main tragedy of climate policy or the main issue that needs to be resolved.

Regarding the mechanism, the economists are correct. Regarding politics, the politicians are correct. It is possible for both of those statements to be true at the same time, which is exactly why this debate consistently results in the same impasse in various nations with various languages and slogans, and why the gas pump number consistently prevails over the atmospheric one.

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