Tax or No Tax? Preferences for climate policy attributes Lars Persson & Runar Brännlund Department of economics, Umeå university, Sweden Centre for Environmental and Resource Economics (CERE) GCET 2010, Bangkok Thailand

Lars PerssonDepartment of economics, CERE3 Background The Swedish government: 4% reduction of GHGs by comparison with the 1990 level Taxes, emissions permit trading, subsidies, regulations, information campaigns, light-bulbs, black-colored cars, etc., etc. Important to consider public preferences and acceptance when implementing the instruments

What’s important to people? Fairness –Income distribution? –Polluter pays? –Ability to pay? –Everyone should pay equally? –Other? Geographic burden –Sweden (within country boarders) –EU (outside country boarders, but within region) –Outside EU The label? → Tax? Other ? Lars PerssonDepartment of economics, CERE4

Our study… Swedes’ preferences for attributes characterizing climate policy instruments and… to conduct an Internet-based survey A CE where respondents are asked to choose between two policies Each policy (alternative) is described by a number of attributes –The attribute-levels are varied to identify their impact on the choice of policy –A cost attribute to account for the budget constraint –A split-sample… Lars PerssonDepartment of economics, CERE5

The attributes in our survey… Lars PerssonDepartment of economics, CERE6

Lars PerssonDepartment of economics, CERE7 AttributeDescriptionLevels Effect on the development of env. technology Policies may affect willingness to invest in new env. tech  No effect  Positive effect  Negative effect Increased ‘climate- awareness’ E.g. information campaigns can affect peoples awareness  Yes  No Distribution of cost A reduction of CO 2 impose a cost on society – which will be distributed across society  All same amount  All same share of income  High income citizens pay a larger share Geographic distribution of CO 2 reduction The given reduction of CO 2 may take place in different countries  Sweden  EU (not Sweden)  Outside EU Monthly cost (private) until 2012 Policies impose a monthly cost (via e.g. consumption) on your household  100 SEK  300 SEK  600 SEK  1000 SEK

The survey - Our sample Swedes, age respondents (panel of ) Note that… –In 2008, 88% of the population (age 16-74) had access to Internet in their homes –In 2008, 84% of the population (age 16-74) use Internet at least once a day Lars PerssonDepartment of economics, CERE8

Gender 47,5 % male (49,7 SCB 2008) Age Mean 50,47 (48,88) Min/max18/88 Lars PerssonDepartment of economics, CERE9

Let us have a look at some of the climate policy related questions outside the choice experiment Lars PerssonDepartment of economics, CERE10

Q:What do you think about the government expenditures for environmental protection? To much, ok as it is, too low, or don’t know. A:59.2% believe that the current government expenditures on environmental protection are too low. Lars PerssonDepartment of economics, CERE11

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Lars PerssonDepartment of economics, CERE13 Notice – no trade-off in this question

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Lars PerssonDepartment of economics, CERE15

The Choice Experiment… Lars PerssonDepartment of economics, CERE16

Question… (an example from the unlabeled experiment) Consider the following policies, A and B. Which of these two, A or B, do you choose for a reduction in CO 2 by 2,4 million tons (4 percent). Tick one of the alternatives. POLICY APOLICY B Effect on the development of environmentally-friendly technology. NEGATIVENO EFFECT Increased climate ‘awareness’ among Swedes. NOYES Social distribution of costs. Higher income citizens pay a larger share (higher percentage) of income All citizens pay the same amount Geographic distribution of the reduction in emissions. Sweden: 0 ton Europe (not Sweden): 2,4 million ton Outside europe: 0 ton Sweden: 2.4 million ton Europe (not Sweden): 0 ton Outside europe: 0 ton Monthly cost (private) until SEK300 SEK My choice (tick your choice)[ ] Note! Both policies reduce the total emission of CO 2 by 2,4 million ton each, no more no less.

Question… (an example from the labeled experiment) Consider the following policies, A and B. Which of these two, A or B, do you choose for a reduction in CO 2 by 2,4 million tons (4 percent). Tick one of the alternatives. TAXOTHER Effect on the development of environmentally-friendly technology. NEGATIVENO EFFECT Increased climate ‘awareness’ among Swedes. NOYES Social distribution of costs. Higher income citizens pay a larger share (higher percentage) of income All citizens pay the same amount Geographic distribution of the reduction in emissions. Sweden: 0 ton Europe (not Sweden): 2,4 million ton Outside europe: 0 ton Sweden: 2.4 million ton Europe (not Sweden): 0 ton Outside europe: 0 ton Monthly cost (private) until SEK300 SEK My choice (tick your choice)[ ] Note! Both policies reduce the total emission of CO 2 by 2,4 million ton each, no more no less.

Results… Random parameter logit model –Allows for taste variation among individuals Random parameters… Willingness to pay measures Lars PerssonDepartment of economics, CERE19

Unlabeled (A or B) Random Parameter Logit Willingness To Pay Coefficient ”Std error” Coefficient, SEK ASC 0.292*** (0.036) Technology (positive) 0.427*** (0.041) (0.208) *** (11.5) Technology (negative) *** (0.042) (0.366) *** (12.7) Climate awareness (yes) 0.389*** (0.038) 0.827*** (0.133) *** (8.8) Income distribution (progressive) 0.319*** (0.037) (0.276) *** (9.6) Income distribution (neutral) 0.234*** (0.029) 0.371* (0.198) *** (8.3) Reduction within Sweden *** (0.030) 0.800*** (0.141) *** (9.8) Reduction within EU (not Sweden) 0.296*** (0.033) 0.769*** (0.162) *** (9.9) Cost *** (0.190) Fixed *** Significant at 1%-level, *Significant at 10%-level. Standard errors within parenthesis. 1,200 (1,194) respondents, 14,400 (14,328) obs.

Unlabeled (A or B)Labeled (Tax or Other) Random Parameter Logit Willingness To Pay Random Parameter Logit Willingness To Pay Coefficient ”Std error” Coefficient, SEKCoefficient ”Std error” Coefficient, SEK ASC 0.292*** (0.036) *** (0.038) Technology (positive) 0.427*** (0.041) (0.208) *** (11.5) 0.352*** (0.041) (0.227) *** (15.9) Technology (negative) *** (0.042) (0.366) *** (12.7) *** (0.042) 0.749*** (0.193) *** (17.4) Climate awareness (yes) 0.389*** (0.038) 0.827*** (0.133) *** (8.8) 0.308*** (0.36) 0.911*** (0.160) *** (12.4) Income distribution (progressive) 0.319*** (0.037) (0.276) *** (9.6) 0.152*** (0.033) (0.237) *** (14.0) Income distribution (neutral) 0.234*** (0.029) 0.371* (0.198) *** (8.3) 0.142*** (0.028) (0.259) *** (11.8) Reduction within Sweden *** (0.030) 0.800*** (0.141) *** (9.8) *** (0.030) 0.968*** (0.186) *** (14.4) Reduction within EU (not Sweden) 0.296*** (0.033) 0.769*** (0.162) *** (9.9) 0.159*** (0.031) 0.676*** (0.225) *** (14.0) Cost *** (0.190) Fixed *** (0.149) Fixed *** Significant at 1%-level, *Significant at 10%-level. Standard errors within parenthesis. 1,200 (1,194) respondents, 14,400 (14,328) obs.

Policy simulations… Other countries… Income levels… Web-based surveys… Lars PerssonDepartment of economics, CERE22

Questions / suggestions? Thank you! Contact: Lars Persson23Department of economics, CERE