Papers about I-732 and state-level carbon taxes

I was the founder and co-chair of the first-ever carbon tax ballot measure in the United States, the grassroots I-732 effort in Washington State in 2016. (It ended up with 41% of the vote, which I like to say is not bad for a campaign that was opposed by just about everybody, including the Sierra Club and others on the environmental left.) Two years later the folks on the environmental left put their own measure on the ballot in Washington State, and raised $15m to support it, and I-1631 ended up with 43% of the vote. (The Western States Petroleum Association, which was neutral on I-732, spent $30m to defeat I-1631.) Anyway, there is now a growing list of papers that study actual carbon pricing policies in the real world, and I’m going to try to keep track of them on this webpage. (I jokingly refer to these as “papers about me” :)

Ehret, Van Boven, and Sherman (Social Psychological and Personality Science, 2018), “Partisan Barriers to Bipartisanship: Understanding Climate Policy Polarization”. (As discussed in this NYT article: “Actually, Republicans do believe in climate change”!)

Abstract: Everyday partisans evaluate policies partly by following partisan cues, fomenting polarization. However, there is debate over the influence of partisan cues in “real-world,” nonlaboratory contexts. An experiment with a real climate change initiative in the 2016 Washington State election tested whether partisan cues influenced climate policy polarization. In a primary study, 504 prospective voters were randomly assigned to view veridical policy endorsements by partisan elites; this study was followed by a preregistered conceptual replication (N = 1,178). Democrats supported the climate policy more than Republicans. But this difference was greater when Democrats endorsed the policy (with Republican opposition) than when Republicans endorsed the policy (with Democratic opposition). Neither knowledge nor belief in climate change reduced these polarizing effects, and greater policy knowledge was associated with increased polarization. Further, the effect of partisan cues on normative perceptions mediated the effect of partisan cues on policy support.

Anderson, Marinescu, and Shor (working paper, 2019), “Can Pigou at the Polls Stop US Melting the Poles?”

Abstract: Surveys show majority U.S. support for a carbon tax. Yet none has been adopted. Why? We study two failed carbon tax initiatives in Washington State in 2016 and 2018. Using a difference-in-differences approach, we show that Washington’s real-world campaigns reduced support by 20 percentage points. Resistance to higher energy prices explains opposition to these policies in the average precinct, while ideology explains 90% of the variation in votes across precincts. Conservatives preferred the 2016 revenue-neutral policy, while liberals preferred the 2018 green-spending policy. Yet we forecast both initiatives would fail in other states, demonstrating that surveys are overly optimistic.

Carattini and Sen (working paper, 2019), “Carbon taxes and stranded assets: Evidence from Washington state”

Abstract: The climate challenge requires ambitious climate policy. A sudden increase in carbon prices can lead to major shocks to the stock market. Some assets will lose part of their value, others all of it, and hence become “stranded”. If the markets are not ready to absorb the shock, a financial crisis could follow. How well investors anticipate, and thus how large these shocks may be, is an empirical question. We analyze stock market reactions to the rejection of two carbon tax initiatives by voters in Washington state. We build proper counterfactuals for Washington state firms and find that these modest policy proposals with limited jurisdiction caused substantial readjustments on the stock market, especially for carbon-intensive stocks. Our results reinforce concerns about “stranded assets” and the risk of financial contagion. Our policy implications support the inclusion of transition risks in macroprudential policymaking and carbon disclosure and climate stress tests as the main policy responses.

Plus there are at least two other research projects that I know are underway. Stay tuned for more!

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