How to increase public support for carbon pricing with revenue recycling

Abstract Carbon pricing is a powerful but politically contentious tool for tackling climate change. Governments can, however, try to increase public support for it by adjusting how the revenues raised by the carbon price are used. In a fully incentivized experiment with a large representative sample of the German population, we compare voter support for five different carbon pricing schemes. We show that uniform carbon dividends (equal per capita transfers to all citizens) receive substantially more support than a carbon dividend that favours poorer people, than earmarking revenues for climate projects and especially than using revenues for the general government budget. Among the uniform carbon dividend schemes, a climate premium that pays a fixed upfront transfer equal to the expected carbon revenues receives more support than a carbon dividend scheme where the size of the transfer is determined ex post based on the actual revenues. Furthermore, we show that participants and experts underestimate public support for carbon pricing. These findings suggest that policies for sustainable development gain more support when affected voters are uniformly compensated for the costs imposed on them. In addition, the paper highlights the importance of incentivized experiments in studying public support for such policies.