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Greenflation: Empirical Evidence using Macro, Regional and Sectoral Data

Author

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  • Bettarelli, Luca
  • Furceri, Davide
  • Pisano, Loredana
  • Pizzuto, Pietro

Abstract

This paper investigates the impact of climate change policies on inflation, for a large sample of 177 developed and developing economies, 78 subnational territorial areas and 17 sectors, over the period 1989-2022. We show that carbon taxes lead to inflationary pressures. The effect is not negligible: a one standard deviation carbon tax shock—corresponding to a 5$/tCO2 increase in emissions-weighted carbon taxes—leads to an increase of the price level of about 0.7 percent one year after the implementation of the policy, and between 1.6 and 4 percent in the medium term. These results hold at the national, sub-national and sectoral level. The effect is larger when inflation is initially high, and in regions (sectors) characterized by high emissions and low innovation capacity. In contrast, we find that emissions trading systems as well as non-market-based climate change policies (such as R&D subsidies) do not have statistically significant effects on prices.

Suggested Citation

  • Bettarelli, Luca & Furceri, Davide & Pisano, Loredana & Pizzuto, Pietro, 2024. "Greenflation: Empirical Evidence using Macro, Regional and Sectoral Data," CEPR Discussion Papers 19643, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:19643
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    File URL: https://cepr.org/publications/DP19643
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    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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