This is the third in a series about recently-passed carbon pricing programs. The other three essays cover Washington, Canada, and Singapore.

In the first two articles of this series, we looked at how Washington and Canada succeeded in passing carbon pricing legislation. Both of those milestones were achieved by party-line votes in which only the center-left party (Democrats in Washington, Liberals in Canada) voted yes, and all conservatives (Republicans in Washington and Conservatives in Canada), as well as further-left parties (NDP and Greens), voted no.

Last year, Austria passed a carbon price with exactly the opposite coalition. The center-right People’s Party (ÖVP) and Greens proposed and passed a policy to tax carbon while the center-left Social Democratic Party (SPÖ), the right-wing Freedom Party (FPÖ), and the free-market New Austrians (NEOS) all voted against. Revenue from the carbon tax was to be used to lower other taxes and send refund checks to households. Here’s what happened, and what American policymakers can glean from the Austrian example. 

Austria’s Trudeau, or Trump?

In 2017, the People’s Party (ÖVP), comparable to U.S. Republicans, chose Sebastian Kurz as its chairman. Kurz was just 31 at the time, having risen swiftly through the party’s ranks since joining at age 17. His meteoric ascent — he became the country’s youngest foreign minister at 27 — earned him the nickname “Wunderwuzzi,” a cross between “whiz kid” and “jack-of-all-trades.”

Kurz leveraged his youthfulness to signal generational change, inviting comparisons to Justin Trudeau and Emmanuel Macron. He completely transformed the party’s branding, referring to it as the “New People’s Party” and to his campaign as a “movement.” He changed the party’s color from black to a hip turquoise, and ran athletes and celebrities as candidates.  

In terms of policy, however, Kurz was more like Austria’s Donald Trump than its Trudeau or Macron. Kurz moved the ÖVP closer to the right-wing nationalist Freedom Party (FPÖ) by taking a tough stance on immigration, which had become a hot-button issue since the 2015 migrant crisis. He made sure to remind voters of his role in closing the Balkan route for refugees in 2016 and instituting a “burqa ban.” He also called for lower taxes. However, he did differentiate the ÖVP from the nationalist Freedom Party by taking a more pro-EU stance. 

Kurz’s rise to leadership and rebranding of the ÖVP brought about an earthquake in Austrian politics. The center-right ÖVP and the center-left SPÖ had governed the country in a grand coalition for all but five years since the early 1980s. Kurz broke with the Social Democrats, bringing down the government and leading to a snap election. In the 2017 election, the ÖVP, which had previously been the smaller party in the governing coalition, gained 15 seats and the right to form a government, but still lacked an absolute majority. Due to the similarities in their platforms, Kurz chose to partner with the right-wing FPÖ. That move made him not only the youngest chancellor in Austria’s history, but also the youngest head of government in the world. 

Scandal forces an unexpected political realignment

Just two years into their five-year term, the ÖVP-FPÖ’s reign was cut short by a corruption scandal involving top FPÖ leaders. Kurz subsequently terminated the coalition agreement and called another snap election. He tried to stay in power until the vote, but was forced out by a motion of no confidence supported by his estranged FPÖ partners in the parliament.

Voters punished the FPÖ in the snap elections – they lost a whopping 20 seats, dropping from 51 to 31. But Kurz’s party, the ÖVP, came out even stronger than before with 71 seats. Kurz was reinstated as chancellor. The FPÖ was clearly off the table as a coalition partner given the recent scandal, and the center-left Social Democratic Party (SPÖ) lost 12 seats. Kurz chose the Green Party, which had risen to 26 seats from none before the snap election, as his majority-making coalition partner. (The Green Party previously had been a long-time mainstay in the Austrian parliament, but had missed the cutoff to enter parliament in the elections in 2017.)

It was an unlikely and unprecedented alliance, the first time in Austria’s history that such a combination of parties formed a government. As a political scientist explained, the Greens are ideologically far removed from the People’s Party. Kurz himself admitted that “it was a challenge for both sides, because the differences between the two sides are big.”

A conservative-green policy agenda

The odd pairing succeeded. 

In early 2020, the ÖVP and Greens unveiled their coalition agreement. Kurz described it as taking the best ideas from each party. “We did not try to negotiate the lowest common denominator but consciously tried to unite the best of both worlds. That’s how it is possible that both the Greens could keep their central campaign promises and so could the People’s Party.”

The deal included many items that conservative Americans might approve of, such as lowering individual and corporate taxes and taking a stricter stance on immigration law. But it also included Green priorities such as a commitment to 100 percent clean energy by 2030, carbon neutrality by 2040, and investments in public transportation and climate protection.

Division of labor was key to the arrangement: The Greens took charge of four ministries (including environment and justice) and the ÖVP maintained control of the other 11 ministries (including interior, foreign policy, and  defense). This allowed each party to implement its priorities.

“We have succeeded in uniting the best of both worlds,” said Kurz. “It is possible to protect the climate and borders.”

A Right-Left carbon pricing proposal

A carbon tax was discussed in the initial talks as the ÖVP-Green coalition formed, but it wasn’t until a year later that the parties announced a plan. In early 2021, the coalition announced an “eco-social” reform to the tax system designed to couple carbon pricing with cuts to individual and corporate taxes. The price was slated to start at €30 ($35) per ton and rise to €55 by 2025. It applies to fuels used in buildings and transportation; electricity is already covered by the EU Emissions Trading System.

In October 2021, Austrian politics was rocked by another bombshell. A corruption probe alleged that Kurz had embezzled public money to bribe pollsters and journalists back in 2016. Within days, Kurz was forced to resign as chancellor. He denied criminal wrongdoing, saying that he was “neither a saint nor a criminal,” and the investigations into his alleged corruption continue to this day. Kurz retired from Austrian electoral politics and went to work as political advisor to the venture capitalist Peter Thiel.

Despite Kurz’s departure, the ÖVP-Green coalition held. In January 2022, the parliament passed the eco-social tax reform package. Finance Minister Magnus Brunner projected that the tax reforms would create 30,000 jobs and generate an additional 1 percent of GDP growth.  While rival parties SPÖ, FPÖ, and NEOS each agreed to some parts of the deal, they ultimately did not support the package as a whole.

The pricing system is an interesting hybrid of a carbon tax and emissions trading. It is administered via an emissions trading system (ETS), but for its first four years, until 2026, it is effectively a carbon tax. At this stage, the government will set a fixed price for allowances and require regulated entities to purchase them; there will be no trading. After 2026, the system will transition to a market-based ETS.

The government expects the scheme to generate €5 billion ($5.8 billion) in revenue by 2025. Most of that revenue will be returned directly to citizens. Urban residents will receive a €100 annual “climate bonus” while rural residents will receive €200 due to their greater reliance on personal transportation. Some revenues will also be used to lower corporate tax rates and to reduce income taxes for the middle class — households with incomes between €18,001 and €60,000, around $20,000 to $65,000.  

Though environmental groups criticized the carbon price for not being ambitious enough, Greens leader and Vice Chancellor Werner Kogler argued it would bring about “less pollution in the air, more money in the wallet” and that “setting out on the path is more important than where the price is set initially.”

Takeaways

What can the U.S. learn from Austria’s experience passing a carbon tax?

1). A carbon tax can be conservative.

Austria’s experience shows that conservative voters and politicians can support climate action, under the right conditions. The carbon price is set up to woo three major branches of the conservative movement: The market-based mechanism and corporate tax reductions appeal to businesses, reducing middle-class income taxes appeals to working people, and giving more money to rural people appeals to regions that are traditionally more conservative. Such a design could have similar multifaceted conservative appeal in the U.S., too.    

Several key Republican constituencies are becoming more vocally supportive of climate action or increased revenue: Business supports a carbon tax, younger voters demand climate action, and rural regions want support. If their demands become more urgent and the right leaders arise, these conservative factions could make common cause with Democrats to pass a carbon tax that gives money back to Americans, with a special focus on left-behind regions.

2). The future is faction.

Kurz and the ÖVP did not campaign on a climate platform. But by appealing to the right with their immigration platform and making common cause with a faction of the left, they were able to accomplish many of their policy priorities and to shape a conservatively-influenced climate and fiscal policy: a carbon tax that sends twice as much money back to rural residents as to urbanites. 

The U.S.’s two-party system, maintained by single-winner districts, makes it more difficult to build coalitions in the way that Austrian leaders did. But political scientists might call the Austrian carbon price a “bipartisan logroll” in which both sides got things that were a high priority for them, and neither had to eat a poison pill. This can happen in the U.S. context, too. As both parties fissure into smaller, coherent subgroups, or factions, one can imagine a multi-faction agreement emerging. Market-oriented Republicans responding to business interests, populist Republicans responding to struggling regions, and climate-hawk Democrats representing young, urban, and climate-concerned Americans could support a policy similar to Austria’s. Revenue from a carbon tax could be directed toward priorities such as reduced taxes, especially for rural Americans; increased domestic energy production; and low-carbon upgrades to American manufacturing. 

3). Leadership on the right can make a difference.

Sebastian Kurz successfully rebranded the ÖVP, brought his party to victory (twice), and formed an unprecedented ÖVP-Greens coalition. That coalition then passed a carbon price through an unprecedented deal that allowed both the ÖVP and the Greens to advance many of their priorities. By being inactive on climate change and taking a backseat on clean energy, Republicans risk letting Democrats set all the terms of discourse. By stepping up and being willing to work with Democrats, Republican leaders could shape the agenda and achieve conservatively-influenced policy outcomes as Kurz and the ÖVP did.

American Republicans, especially younger voters, are recognizing the risks of unchecked climate change. And some lawmakers are seeing the potential for conservative policy solutions such as a carbon tax and an energy-abundance agenda. Austria’s right-wing party shows that conservative policy measures in the climate and energy space can bear fruit.