Quasi-experimental evidence on carbon pricing

Kasper Vrolijk and Misato Sato

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: A growing literature suggests that carbon emissions are most efficiently reduced by carbon pricing. The evidence base on the effectiveness of market-based mechanisms, however, faces three key limitations: studies often (a) predict, rather than evaluate effects, (b) show large difference in findings, and (c) cannot always infer causal relations. Quasi-experimental studies can address these challenges by using variation in policies over time, space, or entities. This paper systematically reviews this new literature, outlines the benefits and caveats of quasi-experimental methodologies, and verifies the reliability and value of quasi-experimental estimates. The overall evidence base documents a causal effect between carbon pricing and emission reductions, with ambiguous effects on economic outcomes, and there are important gaps and inconsistencies. This review underscores that estimates should be interpreted with care because of: (a) inappropriate choice of method, (b) incorrect implementation of empirical analysis (e.g., violate identifying assumptions), and (c) data limitations. More cross-learning across studies and use of novel empirical strategies is needed to improve the empirical evidence base going forward.

Keywords: carbon pricing; quasi-experimental designs; proposition: carbon pricing; policy impact; empirical evidence (search for similar items in EconPapers)
JEL-codes: C21 H23 Q58 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2023-08-01
New Economics Papers: this item is included in nep-dcm, nep-ene and nep-env
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Published in World Bank Research Observer, 1, August, 2023, 38(2), pp. 213 - 248. ISSN: 0257-3032

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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:118404

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