The Green Shock: Carbon Pricing, Local Decline, and the Rise of the Populist Right in Europe

Does carbon pricing fuel the populist radical right? This paper exploits the Phase 3 reduction in free emission allowances beginning in 2013 in the EU Emissions Trading System as a quasi-natural experiment in a difference-in-differences model for 889 NUTS-3 regions in 23 European countries. Regions more exposed to the shock saw higher populist radical-right (PRR) shares, concentrated in European Parliament (EP) elections, pointing to expressive voting that channels EU-policy grievances toward the EU ballot box. The shock reaches voters through broader regional stagnation rather than deindustrialisation, as services employment falls, GDP per capita declines, and population shrinks while manufacturing employment remains unchanged. A sectoral decomposition links the EP concentration to regions with greater power-sector exposure, consistent with allowance-cost pass-through to household electricity bills. Replacing PRR with populist radical-left or Green vote shares flips the coefficient to negative, suggesting a right-wing rather than generic protest response. Instrumental variable estimates based on the manufacturing free-allocation component support the finding, which survives controls for Eurozone-crisis exposure and migration patterns. The paper contributes to the political economy of climate policy by showing that carbon pricing can generate geographically concentrated right-wing backlash and EU-directed protest voting.