[Paper Review] Effects of carbon pricing and other climate policies on CO2 emissions

Emanuel Kohlscheen, Richhild Moessner+1 more|arXiv (Cornell University)|Feb 6, 2024

Climate Change Policy and Economics15 citations

TL;DR

Ex-post empirical analysis across 121 countries shows carbon taxes and permit prices in ETS reduce CO2 emissions; a $10/ton CO2 tax cut per capita emissions by 1.3% short-run and 4.6% long-run.

ABSTRACT

We provide ex-post empirical analysis of the effects of climate policies on carbon dioxide emissions at the aggregate national level. Our results are based on a comprehensive database of 121 countries. As climate policies we examine carbon taxes and emissions trading systems (ETS), as well as the overall stringency of climate policies. We use dynamic panel regressions, controlling for macroeconomic factors such as economic development, GDP growth, urbanisation, as well as the energy mix. We find that higher carbon taxes and prices of permits in ETS reduce carbon emissions. An increase in carbon taxes by $10 per ton of CO2 reduces CO2 emissions per capita by 1.3% in the short run and by 4.6% in the long run.

Motivation & Objective

• Assess the aggregate national impact of climate policies on CO2 emissions.
• Evaluate the effectiveness of carbon taxes, ETS, and policy stringency.
• Control for macroeconomic factors and energy mix to isolate policy effects.

Proposed method

• Use dynamic panel regressions on a comprehensive database of 121 countries.
• Control for GDP growth, economic development, urbanisation, and energy mix.
• Analyze carbon taxes, emissions trading systems, and overall policy stringency.

Experimental results

Research questions

• RQ1 Do carbon taxes reduce CO2 emissions at the national level?
• RQ2 Do prices in emissions trading systems reduce CO2 emissions?
• RQ3 How does the stringency of climate policies relate to CO2 emissions when accounting for macroeconomic factors?
• RQ4 What are the short-run and long-run emissions responses to carbon pricing?

Key findings

• Higher carbon taxes reduce CO2 emissions per capita in the short run and long run.
• Higher permit prices in ETS reduce CO2 emissions per capita.
• Increases in carbon taxes are associated with reductions in emissions per capita (1.3% short run, 4.6% long run) for a $10/ton CO2 tax.
• Policy stringency and ETS prices have measurable negative associations with CO2 emissions after controlling for macro factors.
• The results are based on a dataset covering 121 countries.