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Carbon price floors and low-carbon investment: A survey of German firms

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  • Ohlendorf, Nils
  • Flachsland, Christian
  • Nemet, Gregory F.
  • Steckel, Jan Christoph

Abstract

Introducing a price floor in emissions trading schemes (ETS) theoretically stabilizes expectations on future carbon prices and thus fosters low-carbon investment. Yet, ex post evidence on high carbon prices is scant and the relevance of carbon pricing for investment decisions is frequently contested. We provide empirical ex ante evidence on how a price floor in the EU ETS would impact the size and portfolio of energy firms’ investments. Analyzing survey responses of high-level managers in 113 German energy and industry companies, we find that the level of the price floor is crucial. A low price floor trajectory only provides insurance against downward price fluctuations and would leave investments largely unchanged except for industries receiving electricity price compensation, which reduce their investments. A high floor, significantly increasing the price level beyond current expectations, leads to higher investment by the majority of firms, especially by green firms, while investment in fossil energy would partially be abolished. Our studies implies that price floors can be important design components of ETS. However, policymakers need to ensure that they are at sufficiently high levels to affect investment decisions in a meaningful way.

Suggested Citation

  • Ohlendorf, Nils & Flachsland, Christian & Nemet, Gregory F. & Steckel, Jan Christoph, 2022. "Carbon price floors and low-carbon investment: A survey of German firms," Energy Policy, Elsevier, vol. 169(C).
    • Handle: RePEc:eee:enepol:v:169:y:2022:i:c:s0301421522004074
    DOI: 10.1016/j.enpol.2022.113187
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    4. Zhang, Xinhua & Hueng, C. James & Lemke, Robert J., 2023. "Using a price floor on carbon allowances to achieve emission reductions under uncertainty," Economic Analysis and Policy, Elsevier, vol. 80(C), pages 1096-1110.
    5. Christoph Böhringer & Knut Einar Rosendahl & Halvor Briseid Storrøsten, 2025. "Measures Against Carbon Leakage: Combining Output-Based Allocation with Consumption Taxes," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 12(6), pages 1601-1634.
    6. Mei Lu & Michael G Pollitt, 2025. "Will high carbon prices reduce fossil fuel use in China? Evidence from price elasticity estimates using firm data," Working Papers EPRG2508, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    7. Tautorat, Paul & Iversen, Jasper & Schmidt, Tobias S. & Steffen, Bjarne, 2025. "Real options analysis of decarbonization investments in the chemical industry," Applied Energy, Elsevier, vol. 397(C).
    8. Millischer, Laurent & Evdokimova, Tatiana & Fernandez, Oscar, 2023. "The carrot and the stock: In search of stock-market incentives for decarbonization," Energy Economics, Elsevier, vol. 120(C).
    9. Wang, Haoyu & Lyu, Kefu, 2025. "Environmental tone and carbon market behavior: Understanding market dynamics through corporate environmental attitudes in China," Structural Change and Economic Dynamics, Elsevier, vol. 74(C), pages 792-813.
    10. Shrestha, Keshab & Naysary, Babak & Philip, Sheena Sara Suresh, 2023. "Price discovery in carbon exchange traded fund markets," International Review of Financial Analysis, Elsevier, vol. 89(C).
    11. Simone Borghesi & Nicola Comincioli & Peter M. Kort & Jacco J. J. Thijssen & Sergio Vergalli, 2025. "Brown Price and Green Firms: An ETS Price Floor for a Clean Transition?," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 88(11), pages 2907-2936, November.

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