Firms’ heterogeneous (and unintended) investment response to carbon price increases

Anna Matzner and Lea Steininger

No 2958, Working Paper Series from European Central Bank

Abstract: We study the heterogeneous pass-through of carbon pricing on investment across firms. Using balance sheet data of 1.2 million European firms and identified carbon policy shocks, we find that higher carbon prices reduce investment, on average. However, less carbon-intensive firms and sectors reduce their investment relatively more compared to otherwise similar firms after a carbon price tightening shock. Following carbon price tightening, firms in demand-sensitive industries see a relative decrease not only in investment but also in sales, employment and cashflow. Moreover, we find no evidence that higher carbon prices incentivise carbon-intensive firms to produce less emission-intensively. Overall, our results are consistent with theories of the growth-hampering features of carbon price increases and suggest that carbon pricing policy operates as a demand shock. JEL Classification: Q54, Q58, D22, H23

Keywords: carbon pricing; climate crisis; corporate finance; economic growth; public policy (search for similar items in EconPapers)
Date: 2024-07
New Economics Papers: this item is included in nep-eec, nep-ene, nep-env and nep-eur
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp2958~0002545c73.en.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20242958

Access Statistics for this paper

More papers in Working Paper Series from European Central Bank 60640 Frankfurt am Main, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Official Publications ().