Climate Policy and the Economy: Evidence from Europe's Carbon Pricing Initiatives

Diego Känzig and Maximilian Konradt

No 31260, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper investigates the impact of carbon pricing on the economy, with a focus on European carbon taxes and the carbon market. Our analysis reveals three key findings. First, while both policies have successfully reduced emissions, the economic costs of the European carbon market are larger than for national carbon taxes. Second, we explore four factors that explain this difference: fiscal policy and revenue recycling, pass-through and sectoral coverage, spillovers and leakage, and monetary policy. Our findings suggest that all four factors play a significant role. Third, we document substantial regional heterogeneity in the impacts of the carbon market, which crucially depend on the share of freely allocated emission permits and the degree of market concentration in the power sector.

JEL-codes: E32 E62 H23 Q54 Q58 (search for similar items in EconPapers)
Date: 2023-05
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Journal Article: Climate Policy and the Economy: Evidence from Europe’s Carbon Pricing Initiatives (2024)
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