Estimating the CO2 emission and revenue effects of carbon pricing: New evidence from a large cross-country dataset

Filippo Maria D’Arcangelo, Mauro Pisu, Anasuya Raj and Kurt van Dender

No 1732, OECD Economics Department Working Papers from OECD Publishing

Abstract: This paper estimates the long-run elasticity of emissions and carbon-related government revenues to carbon pricing. It is based on the OECD Effective Carbon Rates database, the most comprehensive cross-country longitudinal database on direct and indirect carbon pricing. Econometric estimates suggest that a EUR 10 increase in carbon pricing decreases CO2 emissions from fossil fuels by 3.7% on average in the long term. In such a scenario, carbon-related government revenues would triple at global level, though over time they are expected to dwindle as additional increases in carbon pricing result in further reductions in emissions. Broadening carbon pricing to currently unpriced emissions contributes to two thirds of the effects on emissions and revenues. At the country level, emissions and government revenues responses differ depending on countries’ sectoral structure and fuel sources. Dynamic simulations based on these estimates reveal that even large effective carbon rates (about EUR 1000 per tonne by late 2030s) will not suffice to meet net-zero emission targets. A sensitivity analysis shows that this result is robust to a large range of elasticity estimates. Reaching net zero then calls for complementary policies aiming at broadening and raising carbon prices, and drastically increasing the substitution of clean energy sources for fossil fuels through innovation and reallocation.

Keywords: carbon price elasticity; carbon-related revenues; Effective carbon rates; mitigation policy (search for similar items in EconPapers)
JEL-codes: C23 H23 Q41 Q48 Q54 (search for similar items in EconPapers)
Date: 2022-11-21
New Economics Papers: this item is included in nep-ene and nep-env
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://doi.org/10.1787/39aa16d4-en (text/html)

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:oec:ecoaaa:1732-en

Access Statistics for this paper

More papers in OECD Economics Department Working Papers from OECD Publishing Contact information at EDIRC.
Bibliographic data for series maintained by ().