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The heterogeneous effects of carbon pricing: macro and micro evidence

Author

Listed:
  • Berthold, Brendan

    (University of Lausanne)

  • Cesa-Bianchi, Ambrogio

    (Bank of England)

  • Di Pace, Federico

    (Bank of England)

  • Haberis, Alex

    (Bank of England)

Abstract

This paper investigates the economic effects of carbon pricing policies using a panel of countries that are members of the EU Emissions Trading System. Carbon pricing shocks lead, on average across countries, to a decline in economic activity, higher inflation, and tighter financial conditions. These average responses mask a large degree of heterogeneity: the effects are larger for higher carbon-emitting countries. To sharpen identification, we exploit granular firm-level data and document that firms with higher carbon emissions are the most responsive to carbon pricing shocks. We develop a theoretical model with green and brown firms that accounts for these empirical patterns and sheds light on the transmission mechanisms at play.

Suggested Citation

  • Berthold, Brendan & Cesa-Bianchi, Ambrogio & Di Pace, Federico & Haberis, Alex, 2024. "The heterogeneous effects of carbon pricing: macro and micro evidence," Bank of England working papers 1076, Bank of England.
    • Handle: RePEc:boe:boeewp:1076
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    File URL: https://www.bankofengland.co.uk/-/media/boe/files/working-paper/2024/the-heterogeneous-effects-of-carbon-pricing-macro-and-micro-evidence.pdf
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    More about this item

    Keywords

    Business cycles; carbon pricing shocks; heterogeneity; asset prices;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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