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Carbon Taxation and Greenflation: Evidence from Europe and Canada

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  • Maximilian Konradt
  • Beatrice Weder

Abstract

This paper studies the effects of carbon pricing on inflation dynamics. We construct a sample of carbon taxes implemented in Europe and Canada over three decades and estimate the response of inflation and price components to carbon pricing. Our empirical results suggest that carbon taxes did not significantly increase inflation, with dynamic effects estimated around zero in most specifications. Instead we find support for relative price changes, increasing the cost of energy but leaving the price of other goods and services unaffected. This is consistent with previous findings on the limited aggregate economic costs of carbon taxes. Based on the cross-section of taxes in Europe, we provide suggestive evidence that the response of inflation was especially muted in countries with revenue-neutral carbon taxes and autonomous central banks that can accommodate potential inflationary pressure associated with carbon pricing.

Suggested Citation

  • Maximilian Konradt & Beatrice Weder, 2023. "Carbon Taxation and Greenflation: Evidence from Europe and Canada," Journal of the European Economic Association, European Economic Association, vol. 21(6), pages 2518-2546.
    • Handle: RePEc:oup:jeurec:v:21:y:2023:i:6:p:2518-2546.
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    1. Bettarelli, Luca & Furceri, Davide & Pisano, Loredana & Pizzuto, Pietro, 2025. "Greenflation: Empirical evidence using macro, regional and sectoral data," European Economic Review, Elsevier, vol. 174(C).
    2. Diego R. Känzig & Maximilian Konradt, 2024. "Climate Policy and the Economy: Evidence from Europe’s Carbon Pricing Initiatives," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 72(3), pages 1081-1124, September.
    3. Yannis Dafermos, 2024. "The climate crisis meets the ECB: tinkering around the edges or paradigm shift?," Working Papers 264, Department of Economics, SOAS University of London, UK.
    4. Le, Anh H., 2025. "Climate change and Carbon policy: A story of optimal green macroprudential and capital flow management," Energy Economics, Elsevier, vol. 146(C).
    5. Brzezinski, Michal & Kaczan, Monika, 2025. "Carbon taxes in Europe do not hurt the poor: Evidence from existing taxation schemes," Ecological Economics, Elsevier, vol. 233(C).
    6. Xia, Xiqiang & Chishti, Muhammad Zubair & Dogan, Eyup, 2024. "Transition towards the sustainable development: unraveling the effects of mineral markets, Belt & Road Initiative, and the Paris Agreement on green economic growth," Resources Policy, Elsevier, vol. 91(C).
    7. Yoshihiko Hogen & Yojiro Ito & Kenji Kanai & Naoya Kishi, 2024. "Changes in the Global Economic Landscape and Issues for Japan's Economy," Bank of Japan Working Paper Series 24-E-3, Bank of Japan.
    8. Morão, Hugo, 2024. "The impact of carbon policy news on the national energy industry," Energy Economics, Elsevier, vol. 134(C).
    9. Adrien Bilal & James H. Stock, 2025. "A Guide to Macroeconomics and Climate Change," NBER Working Papers 33567, National Bureau of Economic Research, Inc.
    10. Giovanardi, Francesco & Kaldorf, Matthias, 2025. "Pro-cyclical emissions, real externalities, and optimal monetary policy," Discussion Papers 04/2025, Deutsche Bundesbank.
    11. Hochmuth, Philipp & Krusell, Per & Mitman, Kurt, 2025. "Distributional Consequences of Becoming Climate-Neutral," IZA Discussion Papers 17861, Institute of Labor Economics (IZA).
    12. Albert, Juan-Francisco & Gómez-Fernández, Nerea & Boto-García, David, 2025. "Up in the air: How do carbon policy shocks affect air travel?," Transport Policy, Elsevier, vol. 168(C), pages 54-68.
    13. Boto-García, David & Albert, Juan Francisco & Gómez-Fernández, Nerea, 2024. "Carbon price shocks and tourism demand," Annals of Tourism Research, Elsevier, vol. 108(C).
    14. Amit Roy & Pu Chen & Willi Semmler, 2025. "Carbon Tax Versus Renewable Energy Innovation: Theoretical Insights and Empirical Evidence," Environmetrics, John Wiley & Sons, Ltd., vol. 36(3), April.
    15. Ren'e Aid & Maria Arduca & Sara Biagini & Luca Taschini, 2025. "Emission impossible: Balancing Environmental Concerns and Inflation," Papers 2501.16953, arXiv.org.
    16. Agung Suwandaru & Widhiyo Sudiyono & Ahmed Shawdari & Yuntawati Fristin, 2024. "Understanding the Economic Drivers of Climate Change in Southeast Asia: An Econometric Analysis," Economies, MDPI, vol. 12(8), pages 1-21, August.
    17. Nicolás Aguila & Joscha Wullweber, 2024. "Greener and cheaper: green monetary policy in the era of inflation and high interest rates," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 14(1), pages 39-60, March.
    18. Chung, Changwoo & Kim, Jinsoo, 2024. "Greenflation, a myth or fact? Empirical evidence from 26 OECD countries," Energy Economics, Elsevier, vol. 139(C).

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