Carbon taxes crowd out low-carbon choices: Evidence from a consumer experiment

Abstract

We examine the impact of a carbon tax on consumer choices via a large-scale online randomized controlled trial. Higher taxes generally reduce the demand for high-carbon goods. Compared to an import tax, a carbon tax reduces demand when the tax is zero (i.e., announced but not levied) but leads to relatively higher demand for high-carbon goods when a positive tax is introduced. This difference in demand responses, despite identical prices, is concentrated among climate-concerned consumers. Our findings suggest that carbon taxes can crowd out the effect of climate concerns on consumer choices, with important implications for policy.