Making carbon taxes more acceptable: Evidence from U.S. consumers and dairy products

Carbon taxes are economically efficient but often face public resistance, especially in food markets where taxes may raise concerns about affordability and fairness. This study examines whether revenue earmarking can improve U.S. consumer acceptance of a carbon tax on dairy products. We conduct a discrete choice experiment with 1,169 U.S. primary grocery shoppers using yogurt as the product context. Alternatives vary by base price, carbon tax rate, and revenue use. Earmarking options include nutrition assistance, dairy emissions-reducing R&D, animal welfare and food safety improvements, and general government revenue. Results from a conditional logit model show that consumers respond negatively to higher base prices and to higher carbon tax rates when revenues are allocated to general government revenue. However, the positive and statistically significant interactions between the carbon tax rate and the earmarking indicators show that revenue use substantially changes consumers’ valuation of the tax. WTP estimates for a one-percentage-point increase in the carbon tax rate are negative under general government revenue (-$0.055), positive and statistically significant under nutrition assistance earmarking ($0.018), negative but smaller in magnitude under emissions-reducing R&D (-$0.011), and positive under animal welfare and food safety earmarking ($0.006). These findings suggest that revenue design is central to the acceptability of food carbon taxes. Earmarking revenues toward visible and socially meaningful purposes, especially nutrition assistance, may help reduce consumer resistance and broaden support for climate policy in food markets.