IDEAS home Printed from https://ideas.repec.org/a/spr/envpol/v27y2025i2d10.1007_s10018-024-00429-w.html
   My bibliography  Save this article

The macroeconomic effects of carbon pricing at a subnational level: evidence from California’s cap and trade

Author

Listed:
  • Baioni Tomás

    (National University of La Plata (UNLP))

Abstract

This paper addresses the macroeconomic effects of subnational carbon pricing initiatives, fo- cusing on California’s cap and trade. Using high-frequency data and regulatory news, I construct a carbon policy surprise series to understand the aggregate effects of a carbon policy shock using impulse response functions from a SVAR model. Results on a monthly basis suggest that a shock tightening the carbon pricing regime leads to an immediate significant reduction in carbon emis- sions by 0.05%, albeit this reduction in emissions comes at the expense of an immediate temporary fall in economic activity by 0.01%. On the other hand, results suggest that increasing carbon prices do not transmit to either household energy prices or consumer prices. Likewise, estimations suggest that a positive shock to carbon prices decreases the monetary policy rate and increases unemploy- ment, albeit not statistically significant at the 10%. I resort to local projections as robustness checks and find that the prior conclusions hold, i.e., that the California’s cap and trade initiative has significant macroeconomic effects. I check as well my prior results on a weekly basis and find strong support of my initial results: higher carbon prices decrease California’s economic activity by 0.5% after 17 weeks (4 months).

Suggested Citation

  • Baioni Tomás, 2025. "The macroeconomic effects of carbon pricing at a subnational level: evidence from California’s cap and trade," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 27(2), pages 305-330, April.
  • Handle: RePEc:spr:envpol:v:27:y:2025:i:2:d:10.1007_s10018-024-00429-w
    DOI: 10.1007/s10018-024-00429-w
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10018-024-00429-w
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.

    File URL: https://libkey.io/10.1007/s10018-024-00429-w?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:envpol:v:27:y:2025:i:2:d:10.1007_s10018-024-00429-w. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.