The Macro Effects of Climate Policy Uncertainty

Stephie Fried, Kevin Novan and William Peterman

No 2021-018, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Uncertainty surrounding if and when the U.S. government will implement a federal climate policy introduces risk into the decision to invest in capital used in conjunction with fossil fuels. To quantify the macroeconomic impacts of this climate policy risk, we develop a dynamic, general equilibrium model that incorporates beliefs about future climate policy. We find that climate policy risk reduces carbon emissions by causing the capital stock to shrink and become relatively cleaner. Our results reveal, however, that a carbon tax could achieve the same reduction in emissions at less than half the cost.

Keywords: Climate Policy; Policy Uncertainty (search for similar items in EconPapers)
JEL-codes: H23 H30 Q58 (search for similar items in EconPapers)
Pages: 50 p.
Date: 2021-03-19
New Economics Papers: this item is included in nep-dge, nep-ene and nep-env
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2021-18

DOI: 10.17016/FEDS.2021.018

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