Environmental Taxes and Subsidies for Sustainability: Experimental Evidence on Consumer Preferences for Business Strategy

ABSTRACT Circular textile management is essential to achieving sustainable consumption, as outlined in SDG 12, but consumer behavior and economic factors often hinder its adoption. This study investigates how environmental policies, such as carbon taxes and subsidies, influence consumer choices in the fast fashion sector by examining purchasing preferences for sustainable alternatives. Using an online survey‐based experiment focused on T‐shirts in Italy, the study analyzed stated purchase intentions in different price scenarios influenced by taxes and subsidies. The results show that subsidies significantly increase the preference for sustainable products, even among price‐sensitive consumers, while carbon taxes have a limited overall effect. A clear “circular premium” emerges, with many consumers willing to pay more for sustainable options. The results suggest that positive incentives, such as subsidies, are more effective than punitive measures in promoting sustainable behavior, especially among low‐income groups. From a business strategy perspective, circular fashion represents not only a sustainable alternative but also a valued choice for many consumers, as the circular premium highlights a growing willingness to invest in products that align with environmental responsibility. Policy strategies and business strategies should therefore prioritize support mechanisms that reconcile affordability with environmental objectives.