The Politics of American and Canadian Carbon Pricing

Abstract

A vast economics literature embraces taxation of the carbon content of fossil fuels as the superior policy approach for reducing greenhouse gas emissions and pursuing other major energy policy goals. However, national government experience around the world suggests that carbon taxes face exceedingly difficult political hurdles. Federal experience in the United States and Canada confirms this pattern. This paper reviews sub-federal policy development among American states and Canadian provinces, a great many of whom have been active in climate policy development. With one notable exception, it concludes that explicit carbon taxation appears to remain a political non-starter. At the same time, states and provinces have been placing indirect carbon prices on fossil fuel use through a wide range of policies over the past fifteen years. These tend to strategically alter labeling, finding different ways to characterize new or expanded policies by avoiding the terms of "tax" and "carbon" in imposing costs. The paper offers a framework for considering such a diverse set of strategies and examines common design features, including direct linkage between cost imposition and fund usage to build political support.

Keywords: carbon taxation; energy taxation; climate policy; energy policy: Canadian energy policy; American energy policy

JEL Classification: R48, Q48, Q38, Q28, L98, K32, H71, H77