English: Real-world carbon pricing schemes

In reality, we observe mixed strategies for spending the carbon pricing revenue, see Figure 3 for an overview of revenue recycling in different carbon tax schemes. However, successful carbon pricing initiatives have designed their revenue recycling in accordance with at least some of the presented political and behavioural effects.

The success story of Sweden’s world-leading carbon tax may partly be owed to extensive public dialogue and social deliberation, which may have reinforced political trust and transparency prior to the fiscal reform that introduced carbon taxation.

The revenues of Alberta’s successful “carbon levy” are split between green spending and compensation for those who are disproportionately affected by carbon pricing, thereby illustrating lessons on labelling and the ignorance of Pigouvian pricing.

British Columbia, where all carbon tax revenues go to households and firms, has created strong constituencies in favour of carbon pricing. Backed both by an environmentally aware electorate base and the business community, the center-right government was able to design a carbon tax reform that enjoys broad political acceptance.

The Australian carbon pricing scheme provides a cautionary tale. Introduced in 2012, the recycling strategy was designed “by the book”, taking into account insights on equity and efficiency. However, due to problems of political credibility, lack of a convincing narrative, and a public debate too focussed on technical details, the tides quickly turned against the Australian carbon price in the then aggressive political climate. The system was abolished in 2014, demonstrating that a carbon price design that meets equity and efficiency goals alone is not sufficient, while politics and political communication are of crucial importance.