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Working paper title: Shocking Electricity Prices and Carbon Tax Aversion

By: Jens Ewald

Abstract

I study the causal impact of exposure to high electricity prices on attitudes toward carbon taxation, utilizing a geographic regression discontinuity design and a targeted survey of Swedish households near electricity bidding zone borders. I find that exposure to doubled electricity prices increases opposition to carbon taxation by 20 percentage points. Additionally, this exposure skews respondents' policy beliefs, leading to heightened overestimation of the tax’s costs and reinforcing the erroneous perception that a progressive carbon tax is regressive. To quantify the role of these belief changes in explaining the observed increase in opposition, I employ an instrumental variable approach, leveraging tailored information treatments within the survey as instruments. My analysis indicates that 29% and 58% of the observed increase in opposition can be attributed to pessimistic shifts in the beliefs about the tax's affordability and progressivity, respectively.

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