Carbon Pricing and Investment

James R Brown, Gustav Martinsson, Strömberg, Per and Christian Thomann

No 21716, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: How does carbon pricing affect investment in brown firms? During the period 2000–2019, the effective cost of emitting carbon rose by about 400 percent for Swedish manufacturing firms. Despite lower operating margins, high-emission firms significantly increased both total capital investment and the share of investment dedicated to abatement. The response is concentrated among firms with strong internal financial capacity. We find no comparable investment increase in lower-emitting firms or in high-emission industries outside of Sweden. Our results show that pricing CO2 emissions at a sufficiently high level can incentivize brown firms to make green investments.

Keywords: Carbon pricing; Climate policy (search for similar items in EconPapers)
JEL-codes: G31 Q53 Q54 (search for similar items in EconPapers)
Date: 2026-07
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