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Greenflation: Empirical Evidence using Macro, Regional and Sectoral Data

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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, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:19643
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    2. Sardone, Alessandro, 2025. "Road to Net Zero: Carbon policy and redistributional dynamics in the green transition," IWH Discussion Papers 16/2025, Halle Institute for Economic Research (IWH).
    3. Hung, Shih-Wei, 2025. "Is Investor Anxiety Attributable to Carbon Emissions Trading and Inflation?," Finance Research Letters, Elsevier, vol. 85(PD).
    4. Torsten Ehlers & Jon Frost & Carlos Madeira & Ilhyock Shim, 2025. "Macroeconomic impact of weather disasters: a global and sectoral analysis," BIS Working Papers 1292, Bank for International Settlements.
    5. Vitalii Korovushkin & Sergii Boichenko & Artem Artyukhov & Kamila Ćwik & Diana Wróblewska & Grzegorz Jankowski, 2025. "Modern Optimization Technologies in Hybrid Renewable Energy Systems: A Systematic Review of Research Gaps and Prospects for Decisions," Energies, MDPI, vol. 18(17), pages 1-45, September.
    6. Kostarakos Ilias & Marques Santos Anabela & Molica Francesco, 2025. "Regional resilience in the era of climate change and digitalization," JRC Working Papers on Territorial Modelling and Analysis 2025-08, Joint Research Centre.
    7. Fourné, Marius & Li, Xiang, 2026. "Climate policy and international capital reallocation," Journal of Financial Stability, Elsevier, vol. 82(C).
    8. Afees A. Salisu & Ahamuefula E. Ogbonna & Rangan Gupta & Yunhan Zhang, 2025. "Climate Policy Uncertainty and the Forecastability of Inflation," Working Papers 202525, University of Pretoria, Department of Economics.

    More about this item

    JEL classification:

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

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