Carbon tax salience counteracts price effects through moral licensing

Abstract

Carbon taxes raise the costs of carbon-intensive products to penalize their consumption. Policymakers can decide whether the carbon tax is hidden or indicated explicitly as a component of the retail price. This policy design decision has effects on demand that have been overlooked. Here we show that salient carbon taxes are less effective than hidden taxes in reducing demand because being aware of paying a carbon tax activates a moral licensing process that encourages consumption. Across four experimental studies and two pilot experiments, we found that participants’ purchase intention was consistently higher when the carbon tax was salient. This effect remained robust with different products, carbon tax levels, and additional carbon footprint labels. Salient carbon taxes had a stronger effect on the purchase intention of the climate change concerned and less conservative individuals because they were more susceptible to a boost in moral self-concept triggered by paying the carbon tax.