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Behavioral Contagion Could Spread the Benefits of a Carbon Tax

The United States has been stalled in its approach to climate change, and with attention so heavily focused on the coronavirus pandemic, this may seem an inauspicious moment for action.

But the shock of the pandemic hasn’t merely upended people’s lives. It may also open doors to policy changes previously considered beyond reach. Economic analysis can help identify the most promising opportunities among them.

The economics of climate change is straightforward. Earth is warming both because greenhouse gases are costly to eliminate and because governments have permitted people to emit them into the atmosphere without penalty.

The classical remedy is a carbon tax, a fee on the carbon content of fossil fuels. Generally levied where fuels are extracted or imported, it discourages carbon emissions by making goods with larger carbon footprints more expensive. The World Bank reports that as of 2019, 57 local, regional and national governments have either enacted some form of carbon tax or plan to do so. When people must pay for their emissions, they quickly discover creative ways to reduce them.

Why, then, hasn’t the United States adopted a carbon tax? One hurdle is the fear that emissions would fall too slowly in response to a carbon tax, that more direct measures are needed. Another difficulty is that political leaders have reason to fear voter opposition to taxation of any kind. But there are persuasive rejoinders to both objections.

Regarding the first, critics are correct that a carbon tax alone won’t parry the climate threat. It is also true that as creatures of habit, humans tend to change their behavior only slowly, even in the face of significant financial incentives. But even small changes in behavior are greatly amplified by behavioral contagion — the social scientist’s term for how ideas and behaviors spread from person to person like infectious diseases. And if a carbon tax were to shift the behavior of some individuals now, those changes would quickly spread more widely.

Smoking rates, for example, changed little in the short run even as cigarette taxes rose sharply, but that wasn’t the end of the story. The most powerful predictor of whether someone will smoke is the percentage of her friends who smoke. Most smokers stick with their habit in the face of higher taxes, but a small minority quit, and still others refrain from starting.

Every peer group that includes those people thus contains a smaller proportion of smokers, which influences still others to quit or refrain, and so on. This contagion process explains why the percentage of American adults who smoke has fallen by two-thirds since the mid-1960s.

Behavioral contagion would similarly amplify the effects of a carbon tax. By making solar power cheaper in comparison with fossil fuels, for example, the tax would initially encourage a small number of families to install solar panels on their rooftops. But as with cigarette taxes, it’s the indirect effects that really matter.

According to a 2012 study by the economists Bryan Bollinger and Kenneth Gillingham, a carbon tax that induced a family to install solar panels could be expected to stimulate a neighbor’s copycat installation within four months, on average. Let another four months pass, and each of these two will have spawned additional installations of their own, for a total of four.

At the end of just two years’ time, these figures suggest, the initial new installation will lead to 32 new installations. Contagion doesn’t stop there, either, since each of these families will have shared news about their projects with friends and family in other locations.

Behavioral contagion also has been shown to influence dietary choices. People often eat meat because they grew up with, and continue to live among, people for whom substantial meat consumption is the norm. Because meat has a large carbon footprint, a carbon tax would make it more expensive relative to plant-based foods.

The direct effect of this price change would be small. But as some people shifted the composition of their diets, others would find it easier to shift as well. In short order, these positive-feedback effects would produce more widespread shifts in eating habits. Behavioral contagion would similarly amplify initial responses to a carbon tax in virtually every other energy-intensive activity.

Even with such gains in prospect, many legislators remain unenthusiastic because they perceive a carbon tax as being unpopular with voters. Many families have been struggling to make ends meet, they might say, and the last thing they need is a stiff new tax on energy use. But this problem has a simple solution, which is to adopt what economists call a revenue-neutral design. Under one version, all revenue from the tax would be returned to consumers in the form of monthly rebate checks.

Because the wealthy consume much more energy than others, they would contribute a disproportionate share of the revenue from a carbon tax. The top 10 percent of all income recipients account for almost half of carbon emissions worldwide, an Oxfam International study has found.

Use patterns are less skewed in the United States, but here, too, the wealthy live in bigger houses, drive bigger cars and, at least when the pandemic isn’t raging, take many more trips to distant destinations. Even with equal rebates per capita, most people would get a monthly check for more than they’d paid that month in carbon taxes. Rebates could, of course, be distributed in a more progressive fashion.

Although low- and middle-income families would be net cash beneficiaries under this plan, the wealthy would pay more in tax each month than they would receive in rebates. Even so, prosperous voters would also come out ahead, on balance.

That’s both because they would benefit disproportionately from the resulting reductions in climate losses and because they would otherwise have to shoulder much of the tax burden of climate adaptation measures. In short, compelling evidence suggests that a carbon tax would improve life outcomes for rich and poor alike.

Had carbon taxes been widely adopted decades ago, the planet would not be facing a climate crisis today. Critics are correct that it is too late for this measure alone to defuse the climate threat. Having waited, it will now be necessary to spend trillions of additional dollars on green infrastructure and other mitigation measures.

But adopting a carbon tax even at this late date would greatly reduce both the cost of achieving climate stability and the time needed to achieve that goal.

Robert H. Frank, an economics professor at Cornell University, is the author of “Under the Influence: Putting Peer Pressure to Work” (Princeton, 2020). Follow him on Twitter: @econnaturalist