Abstract
Whereas ecological economists argue strongly in favor of incentive-based approaches to promote renewable energy sources and reduce energy consumption, those instruments have been shown to be particularly difficult to implement politically. We begin with a recognition that cost perceptions that inherently characterize incentive-based policy instruments are a fundamental reason for their unpopularity. We therefore argue that the crucial question that policymakers need to address is how the benefit–cost ratios of incentive-based instruments can be altered in ways such that their inherent costs become acceptable. By focusing on the various features of these instruments, we propose three strategies for answering this question theoretically: objectively reduce the costs, reduce the visibility of the costs, and identify compensation strategies, i.e., strengthen the benefit side of the equation. Based on a conjoint analysis for Switzerland, our results demonstrate that reducing objective and perceived costs may indeed strengthen support for incentive-based policy instruments, whereas cost compensation does not seem to work as well. We show, moreover, that the latter can be explained by the fact that substantial numbers of voters do not understand or are not convinced by the commonly proposed mechanism of environmental taxes. Given that voters do not believe in the usefulness and efficacy of incentive-based policy measures, no cost compensation is feasible.
Similar content being viewed by others
Notes
In a similar vein, also some (usually large) firms in the energy industry prefer command and control regulations to taxes because the former can be influenced to gain competitive advantages over their smaller rivals.
However, empirically, the superiority of incentive-based instruments is less clear. For example, it has been shown that the effectiveness of incentive-based instruments may be limited regarding large-scale innovations (e.g., Kemp and Pontoglio 2011) and, more generally, because of a rather inelastic demand for energy in the short-run (OECD 2006, p. 50).
For example, see “Are the Legacy Costs of Germany’s Solar Feed-In Tariff Fixable?” http://www.greentechmedia.com/articles/read/germany-moves-to-reform-its-renewable-energy-law (retrieved on August 4, 2016) or “Ineffizient und zu teuer” http://www.nzz.ch/mei-nung/kommentare/ineffizient-und-zu-teuer-1.18657976 (retrieved on August 4, 2016).
The survey was conducted in German, French, and Italian, the three most frequently spoken of Switzerland’s four national languages. Participants filled out the survey 65.4% in German, 26.0% in French, and 8.6% in Italian. Romansh individuals likely used the German version to respond to the survey.
The data collection process was conducted by the LINK Institute in Lucerne. The sample was provided by the Federal Office of Statistics from the “Stichprobenrahmen für Personen- und Haushaltserhebungen” (SRPH).
Although the question format differs from a ballot context in which citizens must cast either a yes or no vote, similar rating questions typically are used in pre-poll surveys in Switzerland. It seems to be a suitable way of reducing the number of “don’t know” answers in a situation in which citizens may not (yet) be totally sure about whether to approve or reject a proposal. To test the robustness of our results, we also estimated the model using a binary coding specification, i.e., individuals who indicated a high probability of voting yes (values of 8 or more out of 10) were assigned a 1 (“support”), whereas all others were coded as 0 (“not support”). The results can be found in Fig. 8 in the Appendix, and are almost identical to those presented in the main part of this paper.
Further analysis not presented here, moreover, revealed that indifference between policy measures persists if the policy measures are interacted with the source of funding.
However, exceptions, such as increases in property values, are possible (see Deacon and Shapiro 1975).
References
Ajzen, I., Rosenthal, L., & Brown, T. (2000). Effects of perceived rairness on willingness to pay. Journal of Applied Social Psychology, 30(12), 2439–2450.
Baranzini, A., & Thalmann, Ph. (2004). Voluntary Approaches to Climate Policy. Cheltenham: Edward Elgar.
Bechtel, M. M., & Scheve, K. F. (2013). Mass support for global climate agreements depends on institutional design. Proceedings of the National Academy of Sciences of the United States of America, 110(34), 13763–13768.
Bell, D., Gray, T., Haggett, C., & Swaffield, J. (2013). Re-visiting the ‘social gap’: Public opinion and relations of power in the local politics of wind energy. Environmental Politics, 22(1), 115–135.
Bonoli, G. (2000). The politics of pension reform. Institutions and policy change in Western Europe. Cambridge: Cambridge University Press.
Bornstein, N., & Lanz, B. (2008). Voting on the environment: Price or ideology? Evidence from Swiss referendums. Ecological Economics, 67(3), 430–440.
Bornstein, N., & Thalmann, P. (2008). ‘I pay enough taxes already!’ Applying economic voting models to environmental referendums. Social Science Quarterly, 89(5), 1336–1355.
Buchanan, J. M., & Tullock, G. (1975). Polluter’s profits and political response: Direct control versus taxes. American Economic Review, 65, 139–147.
Cairney, Paul. (2011). Understanding public policy. Chicago: Palgrave Macmillan.
Carattini, S., Baranzini, A., Thalmann Ph., Varone F., & Vöhringer, F. (2016). Green taxes in a post-Paris world: are millions of nays inevitable? Centre for Climate Change Economics and Policy, Working Paper No. 273, Grantham Research Institute on Climate Change and the Environment Working Paper No. 243.
Chong, D., & Druckman, J. N. (2007). A theory of framing and opinion formation in competitive elite environments. Journal of Communication, 57(1), 99–118.
Clinch, P. J., & Dunne, L. (2006). Environmental tax reform: an assessment of social responses in Ireland. Energy Policy, 34, 950–959.
Couture, T., & Gagnon, Y. (2010). An analysis of feed-in tariff remuneration models: Implications for renewable energy investment. Energy Policy, 38(2), 955–965.
Deacon, R., & Shapiro, P. (1975). Private preference for collective goods revealed through voting on referenda. American Economic Review, 65(5), 943–955.
Dermont, C., Ingold, K., Kammermann, L., & Stadelmann-Steffen, I. (2017). Bringing the policy making perspective in: A political science approach to social acceptance. Energy Policy, 108, 359–368.
Deroubaix, J.-F., & Lévèque, F. (2006). The rise and fall of French Ecological Tax Reform: social acceptability versus political feasibility in the energy tax implementation process. Energy Policy, 34(8), 940–949.
Dresner, S., Dunne, L., Clinch, P., & Beuermann, Ch. (2006). Social and political responses to ecological tax reform in Europe: An introduction to the special issue. Energy Policy, 34, 895–904.
Druckman, J. N. (2001). The implications of framing effects for citizen competence. Political Behavior, 23(3), 225–256.
Felder, S., & Schleiniger, R. (2002). Environmental tax reform: Efficiency and political feasibility. Ecological Economics, 42, 107–116.
Gingrich, J. (2014). Structuring the vote: welfare institutions and value-based vote choices. In Staffan Kumlin & I. Stadelmann-Steffen (Eds.), How welfare states shape the democratic public: Policy feedback, participation, voting and attitudes (pp. 93–112). Cheltenham: Edward Elgar Publishing Limited.
Goulder, L. H., & Parry, I. W. H. (2008). Instrument choice in environmental policy. Review of Environmental Economics and Policy, 2(2), 152–174.
Hainmueller, J., Hopkins, D. J., & Yamamoto, T. (2014). Causal inference in conjoint analysis: Understanding multidimensional choices via stated preference experiments. Political Analysis, 22(1), 1–30.
Halbheer, D., Niggli, S., & Schmutzler, A. (2006). What does it take to sell environmental policy? An empirical analysis of referendum data. Environmental & Resource Economics, 33(4), 441–462.
Hartner, M., Rechberger, S., Kirchler, E., & Schabmann, A. (2008). Procedural fairness and tax compliance. Economic Analysis & Policy, 38(1), 137–152.
Häusermann, S. (2010). The politics of welfare state reform in continental Europe: Modernization in hard times. Cambridge: Cambridge University Press.
Häusermann, S., Kurer, Th, & Traber, D. (2016). The politics of trade-offs: Studying the dynamics of welfare state reform with conjoint experiments. Pisa: Paper presented at the ECPR Joint Sessions.
Howlett, M. (2005). What is a policy instrument? Tools, mixes, and implementation styles. In P. Eliadis, M. M. Hill, & M. Howlett (Eds.), Designing government. From instruments to governance (pp. 31–50). Kingston: McGill Queen’s University Press.
Howlett, M., & Ramesh, M. (1993). Patterns of policy instrument choice: Policy styles, policy learning and the privatization experience. Review of Policy Research, 12(1), 3–24.
Howlett, M., Ramesh, M., & Perl, A. (2009). Studying public policy: Policy cycles and policy subsystems (3rd ed.). Oxford: Oxford University Press.
Ingold, K. (2008). Les mécanismes de décision: Le cas de la politique climatique Suisse. Politikanalysen. Zurich: Rüegger Verlag.
Jaffe, A., Newell, R., & Stavins, R. (2002a). A tale of two market failures: Technology and environmental policy. Ecological Economics, 54, 164–174.
Jaffe, A., Newell, R., & Stavins, R. (2002b). Environmental policy and technological change. Environmental & Resource Economics, 22, 41–69.
Kahn, M. E., & Matsusaka, J. G. (1997). Demand for environmental goods: Evidence from voting patterns on California initiatives. Journal of Law and Economics, 40, 137–173.
Kemp, R., & Pontoglio, S. (2011). The innovation effects of environmental policy instruments—A typical case of the blind men and the elephant? Ecological Economics, 72, 28–36.
Kirchgässner, G. (1997). Environmental policy in Switzerland: Methods, results, problems and challenges. In W. Wasserfallen (Ed.), Economic policy in Switzerland (pp. 184–212). Basingstoke, UK: Macmillan.
Kirchgässner, G., & Schneider, F. (2003). On the political economy of environmental policy. Public Choice, 115, 369–396.
Kollmuss, A., & Agyeman, J. (2002). Mind the Gap: why do people act environmentally and what are the barriers to pro-environmental behavior? Environmental Education Research, 8(3), 239–260.
Kriesi, H. (2005). Direct democratic choice. The Swiss experience. Lanham: Lexington.
Kriesi, H. (Ed.). (2012). Political communication in direct-democratic campaigns. Enlightening or manipulating?. Basingstoke: Palgrave.
Lupia, A. (2015). Uninformed: Why people seem to know so little about politics and what we can do about it. Oxford: Oxford University Press.
Lutz, G. (2016). Eidgenössische Wahlen 2015. Wahlteilnahme und Wahlentscheid. Lausanne: Selects – FORS.
Marcantonini, C. & Ellerman, A. D. (2014). The implicit carbon price of renewable energy incentives in Germany. RSCAS Working Paper 2014/28, European University Institute.
Oberholzer-Gee, F., & Weck-Hannemann, H. (2002). Pricing road use: Politico-economic and fairness considerations. Transportation Research Part D: Transport and Environment, 7(5), 357–371.
OECD. (2006). The political economy of environmentally related Taxes. Paris: OECD.
OECD. (2008). Promoting sustainable consumption. Good practices in OECD countries. Paris: OECD.
Parry, I., & Williams, R. (1999). A second-best evaluation of eight policy instruments to reduce carbon emissions. Resource and Energy Economics, 21, 347–373.
Rausch, S., & Karplus, V. J. (2014). Market vs. regulation: The efficiency and distributional impacts of U.S. climate policy proposals. Energy Journal, 35(1), 199–227.
Schulz, T. (2001). Framing Environmental Ballot Propositions: The Influence of Simultaneous "Pocketbook Measures" and Negative Framing, Discussion Paper no. 2001–5. St.Gallen, Forschungsgemeinschaft für Nationalökonomie an der Universität St.Gallen.
Sciarini, P., Bornstein, N. & Lanz, B. (2007). The determinants of voting choices on environmental issues: A two-level analysis. (This version: July 2007) Retrieved from bit.ly/1Ok61At.
Stadelmann-Steffen, I. (2011). Citizens as veto players: Climate change policy and the constraints of direct democracy. Environmental Politics, 20(4), 485–507.
Swiss Confederation (2015). Botschaft zum Verfassungsartikel über ein Klima- und Energielenkungssystem. Bern.
Thalmann, P. (2004). The public acceptance of green taxes and million voters express and their opinion. Public Choice, 119, 179–217.
van Rijnsoever, F. J., van Mossel, A., & Broecks, K. P. F. (2015). Public acceptance of energy technologies: The effects of labeling, time, and heterogeneity in a discrete choice experiment. Renewable and Sustainable Energy Reviews, 45, 817–829.
Vedung, E. (1998). Policy instruments: Typologies and theories. In M. L. Bemelmans-Videc, R. C. Rist, & E. Vedung (Eds.), Carrots, sticks and sermons: Policy instruments and their evaluation. London: Transaction Publishers.
Volleberg, H. (2007). Impacts of environmental policy instruments on technological change. OECD Report, 07-Feb-2007.
Windhoff-Héritier, A. (1987). Policy-analyse. Eine Einführung. Frankfurt: Campus.
Wolsink, M. (2007). Wind power implementation: The nature of public attitudes: Equity and fairness instead of ‘backyard motives’. Renewable and Sustainable Energy Reviews, 11(6), 1188–1207.
Acknowledgements
This research was conducted within the National Research Programme “Managing Energy Consumption” (NRP 71) funded by the Swiss National Science Foundation and supported by the IMG Foundation. We thank Philippe Thalmann and the anonymous reviewers for helpful comments on earlier versions of this article, and Wayne Egers for linguistic assistance.
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
Stadelmann-Steffen, I., Dermont, C. The unpopularity of incentive-based instruments: what improves the cost–benefit ratio?. Public Choice 175, 37–62 (2018). https://doi.org/10.1007/s11127-018-0513-9
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s11127-018-0513-9