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The Heterogeneous Effects of Carbon Pricing: Macro and Micro Evidence

Author

Listed:
  • Brendan Berthold

    (University of Lausanne)

  • Ambrogio Cesa-Bianchi

    (Bank of England
    Centre for Economic Policy Research (CEPR)
    Centre for Macroeconomics (CFM))

  • Federico Di Pace

    (Bank of England)

  • Alex Haberis

    (Bank of England
    Centre for Macroeconomics (CFM))

Abstract

This paper investigates the economic effects of carbon pricing policies using a panel of countries that are members of the EU Emissions Trading System. Carbon pricing shocks lead, on average across countries, to a decline in economic activity, higher inflation, and tighter financial conditions. These average responses mask a large degree of heterogeneity: the effects are larger for higher carbon-emitting countries. To sharpen identification, we exploit granular firm-level data and document that firms with higher carbon emissions are the most responsive to carbon pricing shocks. We develop a theoretical model with green and brown firms that accounts for these empirical patterns and sheds light on the transmission mechanisms at play.

Suggested Citation

  • Brendan Berthold & Ambrogio Cesa-Bianchi & Federico Di Pace & Alex Haberis, 2023. "The Heterogeneous Effects of Carbon Pricing: Macro and Micro Evidence," Discussion Papers 2319, Centre for Macroeconomics (CFM).
    • Handle: RePEc:cfm:wpaper:2319
    as

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    File URL: https://www.lse.ac.uk/CFM/assets/pdf/CFM-Discussion-Papers-2023/CFMDP2023-19-Paper.pdf
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Business Cycles; Carbon Pricing Shocks; Heterogeneity; Asset Prices;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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