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Effects of Carbon Pricing on Inflation

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  • Richhild Moessner

Abstract

We study how carbon pricing has affected inflation ex-post, using dynamic panel estimation of New-Keynesian Phillips curves for 35 OECD economies from 1995 to 2020. As carbon pricing we consider prices of emissions trading systems (ETS) and carbon taxes. We find that an increase in prices of ETS by $10 per ton of CO2 equivalents increases energy CPI inflation by 0.8 percentage points (pp), and headline inflation by 0.08pp, but has no significant effects on food and core CPI inflation. We also find that an increase in carbon taxes by $10 per ton of CO2 equivalents increases food CPI inflation by 0.1pp, but has no significant effects on energy CPI inflation, headline and core CPI inflation.

Suggested Citation

  • Richhild Moessner, 2022. "Effects of Carbon Pricing on Inflation," CESifo Working Paper Series 9563, CESifo.
    • Handle: RePEc:ces:ceswps:_9563
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    References listed on IDEAS

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    Cited by:

    1. Yannis Dafermos, 2024. "The climate crisis meets the ECB: tinkering around the edges or paradigm shift?," Working Papers 264, Department of Economics, SOAS University of London, UK.
    2. Meinerding, Christoph & Schüler, Yves S. & Zhang, Philipp, 2023. "Shocks to transition risk," Discussion Papers 04/2023, Deutsche Bundesbank.
    3. Andreas Breitenfellner & Friedrich Fritzer & Doris Prammer & Fabio Rumler & Mirjam Salish, 2022. "What is the impact of carbon pricing on inflation in Austria?," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue Q3/22, pages 23-41.
    4. Bastianin, Andrea & Mirto, Elisabetta & Qin, Yan & Rossini, Luca, 2024. "What drives the European carbon market? Macroeconomic factors and forecasts," FEEM Working Papers 339740, Fondazione Eni Enrico Mattei (FEEM).
    5. Marco Del Negro & Julian di Giovanni & Keshav Dogra, 2023. "Is the Green Transition Inflationary?," Liberty Street Economics 20230214, Federal Reserve Bank of New York.
    6. Vallès Codina, Oriol, 2023. "Business cycles, sectoral price stabilization, and climate change mitigation: A model of multi-sector growth in the tradition of the Bielefeld disequilibrium approach," Journal of Economic Behavior & Organization, Elsevier, vol. 216(C), pages 636-653.
    7. Łukasz Markowski & Kamil Kotliński, 2023. "Renewables, Energy Mix and Inflation in the European Union Countries," Energies, MDPI, vol. 16(23), pages 1-15, November.
    8. Bartocci, Anna & Notarpietro, Alessandro & Pisani, Massimiliano, 2024. "“Green” fiscal policy measures and nonstandard monetary policy in the euro area," Economic Modelling, Elsevier, vol. 136(C).
    9. Ferrari, Alessandro & Landi, Valerio Nispi, 2022. "Will the green transition be inflationary? Expectations matter," Working Paper Series 2726, European Central Bank.
    10. Yoshihiko Hogen & Yojiro Ito & Kenji Kanai & Naoya Kishi, 2024. "Changes in the Global Economic Landscape and Issues for Japan's Economy," Bank of Japan Working Paper Series 24-E-3, Bank of Japan.
    11. Jannik Hensel & Giacomo Mangiante & Luca Moretti, 2023. "Carbon Pricing and Inflation Expectations: Evidence from France," CESifo Working Paper Series 10552, CESifo.
    12. Morão, Hugo, 2024. "The impact of carbon policy news on the national energy industry," Energy Economics, Elsevier, vol. 134(C).
    13. Richhild Moessner, 2022. "Effects of Precipitation on Food Consumer Price Inflation," CESifo Working Paper Series 9961, CESifo.
    14. Huang, Xinya & Wang, Yufeng & Li, Houjian, 2024. "Exploring the asymmetric influence of economic policy uncertainty on the nonlinear relationship between exchange rate and carbon prices in China," The North American Journal of Economics and Finance, Elsevier, vol. 73(C).
    15. Jannik Hensel & Giacomo Mangiante & Luca Moretti, 2023. "Carbon pricing and inflation expectations: evidence from France," ECON - Working Papers 434, Department of Economics - University of Zurich.
    16. Richhild Moessner, 2022. "Exchange Rate Pass-Through to Food and Energy Consumer Price Inflation," CESifo Working Paper Series 10164, CESifo.

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    More about this item

    Keywords

    climate policies; carbon tax; carbon emission trading system; climate change; inflation;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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