Public acceptability of carbon pricing: unravelling the impact of revenue recycling

ABSTRACT Carbon pricing has emerged as a prominent policy tool to mitigate climate change due to its proclaimed high efficiency and effectiveness. However, the successful and sustainable implementation of carbon pricing also depends on the public acceptability. This paper investigates how revenue recycling shapes public attitudes towards carbon pricing. A systematic literature review identified 48 relevant studies from 2004 to March 2023. Using qualitative content analysis I discern relevant factors and construct a typology of revenue recycling options. Subsequently, a consensus ordinal ranking of revenue recycling options, based on the empirical findings of the reviewed studies, synthesizes current knowledge. The results reveal that revenue recycling has a crucial impact on public acceptability. While environmental earmarking ranks highest, and reducing corporate taxes is the least preferred option, numerous other revenue recycling options lie between these two options. Moreover, the literature presents divergent findings regarding the level of public acceptability of specific revenue recycling options. The diversity of research contexts and designs introduces inherent limitations that may explain variations in rankings observed across different studies. Notably, I identify political trust related to and salience of revenue recycling as important factors affecting public acceptability of carbon pricing. Finally, this research offers a framework for policymakers seeking to design revenue recycling strategies that align with public preferences to implement carbon pricing. KEY POLICY INSIGHTS Revenue recycling is a critical element of effective carbon pricing mechanisms, as public acceptability depends substantially on how revenues are used. The proposed ranking offers a framework for policymakers to design carbon pricing policies. Environmental earmarking is the most preferred way of revenue recycling, but the acceptability of each revenue recycling option also depends on the specific context. Designing revenue recycling in line with public preferences can enhance public acceptability of carbon pricing policies, and hence, their implementation. Trust, communication and salience of revenue recycling can enhance public acceptability of carbon pricing.