The Comparative Politics of Carbon Taxation

Abstract

Cap and trade and carbon taxes offer the prospect of reducing greenhouse gas emissions at a lower cost to society than conventional regulation. Between these two market-based approaches, however, carbon taxes offer significant advantages, including transparency and predictability of costs, ease of implementation, and application to small and large sources alike. This article thus seeks to inform our understanding of the conditions under which carbon taxes are politically viable by comparing the experience of four jurisdictions: Finland and Denmark, which adopted carbon taxes; Germany, which adopted a related energy tax; and Canada, which rejected a carbon tax. The cases highlight the role of policy entrepreneurs in advancing academic theories about environmental taxation. However, the impact of those ideas was conditional on voters' attention to either the environmental or economic benefits of carbon taxes. Even then, business tended to be more attentive, thus winning tax concessions relative to households. Proportional electoral systems tended to facilitate adoption of carbon taxes, whereas international institutions had mixed effects, in some cases advancing harmonization and in others undermining resolve for unilateral taxation.