The cultural multiplier of climate policy

Abstract

For deep decarbonisation, the design of climate policy needs to account for consumption choices being influenced not only by pricing but also by social learning. This involves changes that pertain to the whole spectrum of consumption, possibly involving shifts in lifestyles. In this regard, it is crucial to consider not just short-term social learning processes but also slower, longer-term, cultural change. Against this background, we analyse the interaction between climate policy and cultural change, focusing on carbon taxation. We extend the notion of "social multiplier" of environmental policy derived in an earlier study to the context of multiple consumer needs while allowing for behavioural spillovers between these, giving rise to a "cultural multiplier". We develop a model to assess how this cultural multiplier contributes to the effectiveness of carbon taxation. Our results show that the cultural multiplier stimulates greater reduction in emissions compared to fixed preferences. The model results are particularly relevant to policy acceptance since the cultural multiplier greatly increases effectiveness of a relatively small carbon price level. At high carbon tax levels, the distinction between social and cultural multiplier effects diminishes, as the strong price signal drives even resistant individuals toward low-carbon consumption. By varying socioeconomic conditions, such as substitutability between low-and high-carbon goods, social network structure, proximity of like-minded individuals and the diversity of consumption lifestyles, the model provides insight into how cultural change can be leveraged to induce maximum effectiveness of climate policy.

Keywords: Carbon pricing, Environmental identity, Endogenous preferences, Social networks, Agent-based model