Policy perspective:Building political support for carbon pricing—Lessons from cap-and-trade policies

Energy Policy 134 (2019) 110986

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Policy perspective:Building political support for carbon pricing—Lessons from cap-and-trade policies

T

Leigh Raymond Professor of Political Science Purdue University, 100 N. University St, West Lafayette, IN, 47907-2098, USA

ARTICLE INFO

ABSTRACT

Keywords: Carbon pricing Climate change Climate policy Cap and trade

How can governments build political support for carbon pricing? This question has challenged policy designers since the earliest programs imposing new prices on pollution, and remains a vital question today. This perspective offers insights on strategies for building greater political support for carbon pricing, based on previous experiences with long-running “auction and invest” programs in the U.S. and abroad, including the Regional Greenhouse Gas Initiative (RGGI), California's carbon pricing system, and the EU emissions trading system (ETS). Three key insights can be derived from those experiences. First: cap and trade with an auction of allowances is an important option for carbon pricing with distinctive advantages. Second, it is important to generate tangible public benefits from a carbon price that are distributed among citizens in a way that is broadly perceived as fair and addresses potential concerns about higher consumer costs for energy. Third, the most effective form of those public benefits should vary predictably across a few clearly defined categories according to local circumstances.

1. Introduction In 2018, French citizens burned cars and vandalized national monuments in protest over the nation's carbon tax on gasoline, while newly-elected Ontario Premier Doug Ford argued that he was helping working families by repealing the province's cap-and-trade policy. These events indicate that the question of how to build lasting political support for carbon pricing is more pressing than ever. Although a wide range of studies agree that making a carbon price more acceptable to the public is politically important, they do not agree on which strategies are most likely to meet that goal, including the possible role of a cash rebate (or “carbon dividend”) to citizens. This paper reviews three long-running carbon pricing programs in the U.S. and EU to bring a new perspective to this question. The policies all rely on carbon revenue expenditures consistent with widely held norms of fairness, especially in terms of using revenue to create tangible and widely distributed “public benefits” as well as to reduce greenhouse gas (GHG) emissions. In this manner, the policies illustrate the political advantages of spending carbon revenue to address the climate change problem while also offering shorter-term, tangible benefits to citizens. This “double dividend” of helping the public while also investing in GHG mitigation is a politically important strategy for carbon pricing that goes beyond the simple carbon dividend option. Although not without their own shortcomings, these public benefits strategies have proven effective politically and merit greater attention.

The paper shows how using revenue to protect consumers from higher energy prices was an important part of the design for all three policies considered (Table 1). The idea of creating consumer benefits from carbon revenue emerged for the first time and played a crucial role in the Regional Greenhouse Gas Initiative (RGGI), a cap-and-trade policy in the Northeastern U.S. At the same time, protecting consumers was insufficient for programs in California or the EU, which had to emphasize investments in public health or climate protection benefits to build political support for their renewal and expansion. In sum, the experience of these programs suggests a set of principles for designing and communicating carbon pricing policies for greater public legitimacy and political durability: Reframe the issue in terms of public ownership of the atmospheric commons, and create tangible, widely distributed, and easily recognized benefits for the public consistent with that public ownership framing. Because the specific benefits that are most important politically are likely to vary by context, the perspective also offers some initial hypotheses about the circumstances under which different revenue uses will be most effective politically. 2. Building public legitimacy for carbon pricing—limits of current research Prior research has identified several common public concerns about carbon pricing, including: (1) personal financial costs and regressive distributional impacts, (2) potential environmental ineffectiveness, and

E-mail address: [email protected]. https://doi.org/10.1016/j.enpol.2019.110986 Received 22 February 2019; Received in revised form 29 July 2019; Accepted 2 September 2019 0301-4215/ © 2019 Elsevier Ltd. All rights reserved.

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Table 1 Types of “public benefits” from long-running carbon pricing policies. Type

Description

Key example

Consumer benefits: Reduced energy prices

Subsidies for installation of home energy efficiency and renewable energy improvements or cash payments to defray energy costs Funding for transit and zero-emissions vehicles, investments in highefficiency affordable housing Investments in R&D and subsidies for industrial adoption of clean technology

Regional Greenhouse Gas Initiative (RGGI) California

Public health benefits: Reduced illness from air pollution/ improved quality of life Climate benefits: Reduced threat of climate impacts through accelerated technological transition

(3) carbon pricing as an excuse to expand government revenue (Carattini et al., 2018; Drews and van den Bergh, 2016). Certain policy designs appear to reduce these concerns, including dedicating revenue to programs that reduce climate change emissions, or programs that financially support lower income households (Carattini et al., 2018; Drews and van den Bergh, 2016). In addition, this research has shown that carbon pricing attitudes can be influenced by explanations of how the policies work (Carattini et al., 2019; Carattini et al., 2017). Taken as a whole, this work generally concludes that where support for carbon pricing is low, revenue is best allocated toward environmental expenditures to enhance perceptions of effectiveness, or to revenue transfers to the public at large or specific communities or industries, depending on whether public understands the expected environmental benefits of the higher carbon price (Klenert et al., 2018, 672). Building on this work, a number of scholars and advocates have identified carbon dividends, or equal rebates of carbon revenue to all citizens, as a promising strategy for building public approval (Klenert et al., 2018; Baker et al., 2017; Citizens Climate Lobby, 2019; Skocpol, 2013). Some research suggests that the public favors these dividends, especially when the policy's environmental effectiveness and progressive distributive impacts are explained (e.g., Carattini et al., 2017; see also Schultz and Halstead, 2018), although the public may still favor environmental spending over dividends even after those explanations (e.g., Carattini et al., 2019; Leiserowitz et al., 2016). Others have worried that citizens may not fully connect cash dividends, which come monthly or less frequently, to higher regular energy costs at the pump or heating and cooling bills, weakening public support for the carbon price (e.g., Anderson et al., 2019; Levin et al., 2012). For example, research on the most prominent example of a carbon dividend to date, British Columbia’s carbon tax, indicates that the public struggled initially to connect income tax reductions to higher energy prices (Harrison, 2012), but that over time the tax gained popularity with the public (Murray and Rivers, 2015; Mildenberger et al., 2016). In the end, empirical work on public support for carbon dividends remains limited, making the approach's public appeal promising but still uncertain. Other scholars have stressed the importance of using carbon pricing as part of a larger strategy for promoting major investments in decarbonization of the economy. This research often stresses the need for a larger package of policies to achieve deep decarbonization, with a carbon price potentially supplying revenue for public infrastructure investments toward this goal (Tvinnereim and Mehling, 2018). Other economists have stressed that although some policies may be effective complements to a carbon price, others such as low carbon fuel standards or renewable portfolio standards may actually be redundant or undermine the pricing approach (Schmalensee and Stavins, 2017; Gundlach et al., 2019). Finally, an additional line of research indicates that “green economic development” policies such as renewable portfolio standards may serve as useful steps toward building political support for more ambitious carbon pricing policies (Meckling et al., 2017). Thus, the relationship of carbon pricing to goals of longer-term decarbonization also remains controversial. Unfortunately, there is limited reference to political science research in much of this work on political support for carbon pricing. A recent review (Klenert et al., 2018, 672), for instance, identifies only two major lessons from political science: (1) it is easier to enact higher

EU ETS

carbon taxes where trust in government is higher, and (2) it is better to concentrate benefits from carbon revenue on politically important interest groups, following the collective action theory of Mancur Olson.1. Political science research on this topic indicates a much wider range of relevant findings, however. Political scientists largely agree, for example, that the public primarily cares about the tangible concerns of energy costs and local air pollution when evaluating different energy policy options (Ansolabehere and Konisky, 2014; Stokes and Warshaw, 2017), and that subsidizing renewable energy is politically easier than increasing the cost of carbon-intensive energy (Meckling et al., 2017; Mildenberger, 2015). These findings are consistent with uses of most carbon pricing revenue in practice to fund programs to decrease or offset consumer energy costs (Carl and Fedor, 2016, 52), using distributions consistent with widely shared norms of equality (Drews and van den Bergh, 2016). In short, because climate policies threaten to impose direct and salient costs on the public, research has shown that they must also deliver direct and salient benefits to the general public as a whole (Rabe, 2010; Raymond, 2016; Skocpol, 2013), and not mainly to key interest groups. For this reason, experimental and public opinion research on carbon pricing would benefit from a closer engagement with political science research in this area, especially regarding several of the longest-running carbon pricing policies in the world today. 3. Auction and invest – an important carbon pricing option Although most recent research on public acceptance of carbon pricing has focused on carbon taxes, it is important to recognize that capand-trade programs are a politically durable form of carbon pricing. As of 2019, approximately 8 Gt (CO2e) of GHG emissions were covered by cap-and-trade programs, compared to 3 Gt (CO2e) covered by carbon taxes, with new cap-and-trade programs planned for China as well as other Asian nations in the near future (World Bank, 2019). Thus, capand-trade designs remain the most common form of carbon pricing, with several large cap-and-trade policies already operating for 10 or more years. By 2017 a majority of all cap-and-trade allowances were in programs that primarily auctioned their allowances, while less than 20 percent were in programs with no provisions for auctioning (Table 2). This trend toward what is often called an “auction-and-invest” policy design means that cap-and-trade policies provide more revenue to governments worldwide in 2019 (approximately $70 Bn) than carbon taxes (approximately $25 Bn) (World Bank, 2019). The movement toward auction and invest makes arguments about how to use carbon revenue to build political support as relevant to cap-and-trade policies as to carbon taxes. This continued prevalence of cap-and-trade programs can be explained in part by the policy's advantages over carbon taxes (see generally Boyce, 2018; Schmalensee and Stavins, 2017). The emissions cap creates greater environmental certainty in terms of emissions 1 This conclusion leads the authors to argue that a carbon dividend might also be popular with the public, which is a bit surprising because dividends provide relatively small benefits for most citizens, rather than concentrated benefits to politically important groups.

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Table 2 Distribution of GHG cap-and-trade programs by auction provisions. Source: International Carbon Action Partnership, icapcarbonaction.com/en/ets-map. Primarily auction (more than 50% of allowances)

Some auction (less than 50% of allowances)

No auction

Program

Program

Program

EU ETS a California RGGI Quebec Switzerland

Total allowances % allowances

Annual cap* 1932 370 84 59 5

Annual cap

South Korea PRC Guangdong PRC Fujian PRC Shanghai PRC Shenzen

2450 53.4%

539 422 200 156 31

PRC Hubei PRC Tianjin Kazakhstan PRC Chongqing PRC Beijing New Zealand b Japanc

1348 29.4%

Annual cap 257 170 162 100 46 29 28 792 17.2%

*In Mega Tonnes CO2 equivalent, for 2017 compliance year. a Stationary sources only. b No fixed cap, estimate of total of allowances surrendered for 2017. c Estimate of total 2017 cap for Tokyo and Saitama programs.

the longstanding political assumption that allowances would be grandfathered at no cost to existing emitters (Raymond, 2016). Confronted with this new perspective, a major utility concluded that auctions were “fairer” for their customers, while top officials in the New York Attorney General's office spoke forcefully of the need to auction allowances to protect consumers and help promote energy efficiency and new sources of clean energy (Raymond, 2016). By 2008 the ten RGGI states had approved plans to collectively auction over 90 percent of all allowances. Using carbon revenue to benefit consumers while reducing emissions was central to this accomplishment. As one environmental advocate argued at the time, “To insure this gets broad support, we need to create a program that produces a tangible benefit. We need to show that this program addresses the very serious problem of global warming and pollution but does it in a way that produces a benefit people can get their arms around” (Raymond, 2016). New York Governor George Pataki, one of the political leaders of RGGI, later recalled arguing in favor of dedicating auction revenue to consumers in this way: “If you want to get serious about this, you have to understand the difficult economic times, and that the program has to not put new burdens on consumers or industry” (Raymond, 2016). A prominent representative of affected industries also agreed that a key argument in RGGI was “if ultimately ratepayers are going to pay for this in some fashion, they should get the benefit” (Raymond, 2016). Providing these consumer benefits was thus a clear and longstanding focus of the RGGI program, one that built greater public support over time. Importantly, these stable consumer benefits have helped RGGI survive political challenges since its enactment in 2008, including new political leadership in many states and several repeal efforts (Raymond, 2016; Rabe, 2016). Thus, the “double dividend” of consumer benefits and emissions reductions have proven to be key to the policy's political viability and durability as RGGI remains the longest running carbon pricing policy in the U.S.—one that has moved toward expanding its membership in 2018.

reductions, while preserving incentives for making emissions reductions where the marginal costs of abatement are lowest. Cap-and-trade policies also allow carbon prices to vary with economic conditions, rather than locking in a fixed price, without threatening the environmental gains from the hard emissions cap. Although GHG cap-and-trade programs have been criticized for having a limited impact on emissions, this is a function of the ambition of the emissions cap and duplication by other policies to reduce emissions, rather than the policy design itself. Indeed, cap-and-trade programs for other pollutants, such as sulfur dioxide from power generation in the U.S., cut those emissions by more than 50 percent in less than a decade at very low costs (Schmalensee and Stavins, 2017), and some research suggests that even the less ambitious GHG emissions caps in programs such as the EU Emissions Trading System have had a measurable effect on emissions (Dechezlepretre, Nachtigall, and Venmans, 2018). Thus, cap-and-trade designs continue to offer a useful option for implementing carbon pricing, especially when using an auction to distribute the required allowances for emitting pollution, as was first demonstrated in the Regional Greenhouse Gas Initiative starting in 2003. 4. Consumer benefits: The Regional Greenhouse Gas Initiative (RGGI) RGGI was the first cap-and-trade policy to auction a significant portion of its emissions allowances, thereby creating a pool of carbon revenue. To achieve this goal, RGGI supporters described emissions allowances as public assets that should be distributed in a manner that benefits the public owners of the “atmospheric commons.” This reframing of the issue drew on two widely supported norms of fairness. First, it leveraged the popular “polluter pays” norm suggesting firms should pay for the costs of their pollution. In addition, advocates also highlighted who would benefit from allowance auctions by deploying widely supported norms of equality for justifying their revenue expenditures. Using revenue to provide widely shared and recognized benefits for the public that still generated emissions reductions was RGGI's key innovation in building public legitimacy. “There is no justification for continuing to allow ‘incumbent’ emitters to have a greater right to pollute than others,” argued advocates early in the RGGI process, continuing, “The atmosphere, and the earth's climate are common property. All emitters of pollution should pay for contributing to air pollution and global warming” with revenue used “to minimize impacts on the general public” (Massachusetts Climate Coalition, 2004). This line of argument by environmentalists was soon echoed by more neutral policy experts, while power generators and their industrial customers were slower to respond, in part because of

5. “Public health” benefits: California In 2010, the California Air Resources Board (CARB) announced an auction-and-invest program as the preferred mechanism for meeting the state's 2020 emissions reduction goals under the 2006 Global Warming Solutions Act (A.B. 32). As of 2017, California was auctioning approximately 70 percent of its allowances (ICAP, 2018), making it one of the largest and longest-running auction-and-invest policies in the world today. The California case illustrates the expansion of the range of salient 3

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public benefits summarized in Table 1. Warnings about tangible climate risks for California citizens such as wildfire and drought were prominent in the state's political discourse (Karapin, 2016), raising the importance of the climate benefits frame. In addition, business opposition was weakened by messages stressing the bill's potential to promote new economic opportunities in clean technology (Rabe, 2018). Policy designs to address environmental justice have also been especially important, promising improved local environmental quality for disadvantaged communities. Finally, political discussions have emphasized protecting California residents from major increases in energy costs (Raymond, 2016). In announcing its cap-and-trade program, CARB (2008) suggested using auction revenue for all of these public benefits even as its economic advisory committee echoed RGGI advocates by describing the atmosphere as “a common property resource” the rights to which must be shared “equally to all” (CARB, 2010). At the same time, the California Public Utilities Commission (CPUC, 2008) recommended that any allowances given to investor-owned utilities be auctioned by those utilities, with revenue used for the purposes of A.B. 32. Based on this ruling, consumers have received an equal, semi-annual, electricity bill credit funded by the auction of allowances given to utilities since 2012—arguably the first carbon dividend in the United States. Revenue from other allowances has gone toward other public benefits, including low or zero-emissions housing and transportation options in poor and minority communities, and a high-speed rail line between San Francisco and Los Angeles. Additional laws have further prioritized using auction revenue for the public health needs of poor and minority residents, in response to grassroots political organizing (London et al., 2013). State reporting on auction revenue highlights these consumer and public health benefits, quoting low income residents about their reduced fuel costs from electric vehicles, and describing GHG emissions reduction projects in terms of local air quality gains (CCI, 2017). Meanwhile, funding for larger infrastructure projects with less immediate consumer or public health benefits have been more controversial, as indicated by ongoing controversies and delays in the high-speed rail project (Bizjak et al., 2019). Although consumer and public health benefits helped successfully launch the cap-and-trade program, environmental justice and consumer cost concerns continued to threaten the policy. For example, efforts to codify a more ambitious emissions reduction goal for 2030 failed initially based in part on consumer price concerns. “[New limits on gasoline] won't be that bad if you can afford a new Tesla …,” argued petroleum interests at the time, “but it will be horrible for most California families” (Kahn, 2015). This consumer cost frame was echoed by key Democratic legislators representing working class Latino communities already facing serious economic and pollution challenges, one of whom concluded: “I believe we have to deal with the impacts of climate change. I also represent a population that just can't afford all of these things” (Mason, 2015). A bill ratifying the 2030 emissions goal was only enacted when linked to a companion bill (A.B. 197) promoting several environmental justice goals, including that CARB consider the public health costs from co-pollutants associated with GHGs and prioritize rules that result in “direct emissions reductions” from large stationary sources and mobile sources. Lawmakers made it clear that these public health benefits were necessary to enact the ambitious new GHG emissions goal (Garcia, 2017; Kahn, 2016). Even with the new emissions goal, the use of carbon pricing remained in doubt. In January 2017, CARB's environmental justice advisory committee declared its opposition to “all efforts to extend the California cap-and-trade system in California beyond 2020.” In response, cap-and-trade supporters invoked the tangible benefits of auction revenue, especially in disadvantaged communities: " … [T]here are millions of dollars going to low-carbon public transit, inner-city rail [and] low-income weatherization,” said California Governor Jerry Brown continuing, “… these are programs that help mitigate the

impacts of pollution in disadvantaged and communities of color” (Kahn, 2017). Ultimately, the legislature was able to extend the cap-and-trade program only by enacting another companion bill that increased local air quality regulations—as one observer put it, these environmental justice concerns were “the key” to continuing the cap-and-trade program. With this maneuver, (and by dedicating a small portion of auction revenue to to emissions reductions from agricultural interests in Republican districts), the bill extending cap-and-trade through 2030 was approved by more than two-thirds of the legislature, protecting it from future legal challenges as an unconstitutional tax under California law. Thus, California was able to secure one of the most ambitious climate policies in the world only by emphasizing a wider range of tangible public benefits from carbon pricing revenue to build legitimacy for the program with different parts of the public, especially public health benefits for disadvantaged communities. 6. Climate benefits: strengthening the EU ETS Although it is the largest and longest-running GHG emissions trading program in the world, the EU ETS faced significant opposition during its design and enactment, and had serious problems in its pilot phase from 2005-2007, including allowance price instability and concerns about windfall profits for energy companies (Ellerman et al., 2010; Matisoff, 2010). Phase 2 of the ETS introduced limited reforms, but questions continued about the program's political future (Wettestad, 2014; Convery and Redmond, 2013). In the face of these challenges, EU Member States and the European Commission recommended changes toward a stronger auction-and-invest model (Skjaerseth and Wettestad, 2010). Under this reform, electricity generators had to purchase all of their allowances at auction starting in 2013, with other industries scheduled to buy between 20 and 70 percent of their allowances by 2020 (European Council, 2009). Based on these new rules, the EU will auction 57 percent of all allowances in Phase 3, between 2013 and 2020 (European Commission 2018). In this respect, the EU followed RGGI in providing more tangible public benefits from auction revenue, but with more investments in climate benefits. The union urged Member States to dedicate at least 50 percent of auction revenue for “substantial investments to reduce carbon intensity” and climate adaptation (European Council, 2009). Consistent with RGGI and California, the EU also mentioned using revenue to protect lower income households from higher electricity prices, but only after citing potential investments to reduce emissions, fund research and development, and develop new renewable energy and carbon capture technology. Using this public benefits approach, the EU ETS was able to adopt its important Phase 3 reforms, which improved the policy's performance and political support (Jevnaker and Wettestad, 2017; Skjaerseth, 2017). In practice, more than 80 percent of auction revenue across the EU in Phase 3 has gone to climate protection investments through 2015 (Le Den et al., 2017; see also Narassimhan et al., 2018).2. Planning for Phase 4 of the ETS, from 2020-2030, featured a similar strategy. In October 2014, the European Council adopted a 2030 Climate and Energy Policy Framework that set a 40 percent emissions reduction goal (from 1990 levels), proposed a higher annual percentage reduction of the cap and an equal commitment to auctioning as in Phase 3, despite pressure from higher emitting states to reduce auctioning (Skjaerseth, 2017). Auction defenders cited the importance of maintaining incentives for low-carbon innovations while ensuring affordable energy prices, continuing to stress the climate benefits frame with a 2 Approximately 27 percent of this total revenue was invested in energy efficiency programs, suggesting that the EU is providing some consumer price relief in a manner similar to RGGI, but existing data does not specify the uses of the energy efficiency investments.

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more limited discussion of consumer benefits (European Council, 2014, 2). Environmental groups also opposed free allowances because they would reduce revenue for developing low carbon technologies (European Commission, 2014). The Phase 4 proposal added a new innovation fund using a portion of auction revenue for technologies reducing industrial GHG emissions, as well as a modernization fund to increase investment in power sector improvements in the lowest-income Member States. As with RGGI and California, frames describing emissions rights as a public resource were at the heart of these reforms: “If not handed out for free to industry, these allowances could be auctioned by Member States and provide them with revenues,” said the commission, before concluding, “free allowances are thus a public resource” (European Commission, 2015). This public rights framing elevated ideas of “fairness” in debates over how to use EU carbon revenue (Corporate Europe Observatory, 2016; Carbon Market Watch, 2017). In the wake of these developments, commentators are more optimistic about the future prospects for the EU ETS (Jevnaker and Wettestad, 2017; Elkerbout, 2017), in significant part due to the ETS moving toward an auction-and-invest model with a focus on climate protection benefits. Despite resistance from carbon-intensive interests, the EU has increased political support for carbon pricing by staying committed to auction and invest, and by prominently dedicating carbon revenue to programs to speed decarbonization, with a more limited focus on benefiting energy consumers.

consumer costs (as in RGGI), or to programs delivering other significant public health benefits (as in California), or even to more tangible climate benefits by speeding investments in decarbonization (as in the EU). Note that these policies are similar to the basic principles underpinning the arguments for public approval of a carbon dividend—they all deliver tangible and widely distributed benefits to the public based on a reframing of the atmosphere as a public resource. But the last 15 years of political experience indicate that cash payments may not be the best mechanism in every setting for building public legitimacy. Rather, the last 15 years shows that different “public benefits” are critical to the political success and durability of these policies in different settings. Indeed, it is notable that using carbon revenue to improve poor environmental conditions in disadvantaged communities is becoming a more common political strategy—vital not only in the California case, but more recently in the 2018 renewal of New Jersey's carbon pricing program as well as New York's 2019 Climate and Community Protection Act. This trend suggests that focusing carbon revenue benefits on poor and minority communities may be more politically important in the future than simply addressing consumer price concerns, as environmental inequalities become a more salient political issue. At the same time, these policies also suggest a possible challenge for reconciling carbon pricing with the goal of “deep decarbonization” and substantial public investments in new zero-carbon energy infrastructure to meet ambitious emissions goals recommended by climate scientists. Although carbon pricing offers a potentially vast source of revenue for these investments, experience to date suggests diverting funding from more immediate consumer and public health benefits may make a carbon price more politically vulnerable. On this point, the fact that the EU ETS appears to have gained political support as it has emphasized investing auction revenue into new programs for long-term decarbonization is an encouraging sign for those hoping to use these funds for longer-term infrastructure changes. At the same time, the yellow vest protests against France's climate levy on gasoline are a warning that consumer impacts remain an important threat in Europe even as the ETS dedicates much of this revenue to climate mitigation and adaptation, rather than consumer benefits. This initial research suggests some tentative hypotheses about the conditions under which different public benefits are more likely to be politically influential. Where energy prices and economic inequality are relatively high, the consumer benefit strategy should be most important—although energy prices are sufficiently salient in most of the world that this strategy looks likely to matter to some degree in most settings. Where local air pollution and environmental inequalities are prominent, public health benefits may become dispositive, as appears to have happened in California and now New Jersey and New York. Finally, where public opinion and political attention is more focused on the risks of climate change, as appears to be the case in the EU, a focus on investments in reducing climate change may be the best political strategy. These three cases hardly exhaust the field, however. Already, one can see the potential for a revenue-neutral carbon dividend strategy to have more legitimacy not only with those seeking consumer benefits, but also with political conservatives who are mistrustful of any expansion of government budgets (Schultz and Halstead, 2018). Other strategies may also emerge that offer clearly defined benefits that are tailored to the values and priorities of specific publics. The key is that those benefits be highly salient and consistent with widely held beliefs about fair distributions of public resources, thereby building legitimacy for the potential economic costs the public is being asked to support through higher prices on carbon-intensive energy. In sum, a closer look at the political experience of these three leading carbon pricing programs offers several important implications. First, it suggests that cap and trade should not be overlooked in work on public acceptance of carbon pricing: Cap and trade can also use revenue to build political support while offering some design advantages (and

7. Looking forward A review of research on some of the most prominent and longest running carbon pricing programs globally indicates the political importance of using revenue to promote tangible, widely distributed, and easily recognized public benefits. Experiences of climate policy entrepreneurs in the U.S. and other nations suggest that designing a climate policy to be consistent with widely favored distributive norms regarding the polluter pays principle and equal distributions of a public resource can increase the policy's public legitimacy, but that the most appropriate revenue uses will vary according to local circumstances. Measures to reduce price impacts for consumers while preserving the higher price signal on carbon-based fuels stand out in all three cases, consistent with the subsequent challenge to carbon pricing from populist protests over energy prices symbolized by the yellow vest movement described at the start of the article. Communicating the value of these public benefits is also critical—public confusion over carbon pricing is common, so a strategy that makes the tangible benefits of the policy clear to constituents is required. In this respect, RGGI and California emphasized programs to lower energy costs and improve quality of life for all residents, especially those in California with unequal pollution burdens. Failure to communicate these benefits effectively makes a carbon pricing policy vulnerable to being framed as a “tax on everything” that harms working class families. Arguments promoting longer term green economic development from carbon revenue investments are potentially valuable, for example, but often fail to address salient public concerns about higher energy prices, short term job losses, or serious local air quality issues. RGGI and California's experiences also indicate the importance of identifying a relatively small number of salient public benefits for funding, rather than a “laundry list” of programs that may confuse the public and limit their support. This review of long running cap-and-trade programs suggests that a new idea in carbon pricing—the idea of a carbon “dividend” in the form of an equal per capita payment to all citizens—is consistent with the successful public benefits strategy discussed here. At the same time, it is important to recognize that a cash rebate will not always be the most effective mechanism for delivering the public benefits that can make a carbon pricing policy politically viable. Instead, it may be important to dedicate money to environmental programs to reduce energy use and 5

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disadvantages) compared to carbon taxes. Second, it confirms the political importance of using carbon revenue to generate broadly distributed and easily recognized public benefits, such as those described in Table 1. Third, although generating tangible public benefits is important, the most effective type of benefits varies according to local circumstances, making a single solution such as a carbon dividend is unlikely to be optimal in every context. Finding the policy design and communication strategy that will best improve public support for a carbon pricing policy requires careful attention to these alternatives, and what concerns are most salient for particular groups affected by the new policy.

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