We analyse the impact of carbon price heterogeneity on households in the EU from 2010 to 2020 using a novel dataset that combines carbon pricing policies with household budget survey data and a global multiregional input-output framework. Accounting for both heterogeneity in carbon pricing across emission sources and the indirect effects from inter-industry linkages, we obtain two key findings. First, due to incomplete carbon pricing coverage, household burdens have been lower than previously estimated. Second, carbon pricing incidence across income groups differs not only due to varying carbon intensities of demand but also due to differing expenditure shares on products that benefit from exemptions. In the majority of EU countries, low-income households have on average paid higher prices for the carbon embodied in their consumption than highincome households. Closing the carbon pricing gaps, particularly with regard to emissions embodied in imports, can help equalise burdens.

Using newly constructed sector-specific carbon price data, we study the response of CO2 emissions to carbon pricing policies for a cross-country panel covering 1990-2016. We explicitly estimate the distinct effects of policy introduction (regardless of the price level) and effects attributable to changes in the price level, finding that omission of either element can bias estimation. Applying the generalized synthetic control method to estimate average treatment effects in five sectors based on a linear factor model with interactive fixed effects, we find that the introduction of carbon pricing has reduced annual growth in total aggregate CO2 emissions by 1 percentage point on average relative to imputed counterfactuals, with most abatement occurring in the electricity and heat sector (1.5 percentage points relative to counterfactuals). Decomposing average treatment effects to identify average interannual sector-specific CO2 emissions elasticities, we find a small and imprecisely estimated semi- elasticity (a 0.06 %age point reduction in emissions growth per average $1/tCO2). Using our semi-elasticity estimates, we simulate the response of future global emissions to plausible carbon price trajectories, finding that the global average CO2 price is estimated to need to exceed $175/tCO2 for current estimated introduction and price effects to be sufficient to trigger emission reductions consistent with the Paris Agreement.

Adopted in 2023, the Carbon Border Adjustment Mechanism (CBAM) is a significant component of the European Union's ambitious decarbonization strategy under the European Green Deal. This article questions the output effectiveness of the CBAM in achieving its stated objective, prevention of carbon leakage, while demonstrating its impact effectiveness as an instrument for advancing the global diffusion of carbon pricing. Empirical evidence for carbon leakage remains sparse, and implementation challenges might limit the capacity of the CBAM to counteract leakage even where it occurs. Nonetheless, the CBAM has already demonstrated a powerful spillover effect by incentivizing the acceleration of carbon pricing roadmaps across EU trade partners, suggesting that trade-related climate measures can effectively encourage global climate action. As the EU navigates the complexities of operationalizing the CBAM, it must balance several tradeoffs to maintain this important spillover effect. If successful, the CBAM could catalyze a virtuous cycle of carbon pricing adoption, reinforcing its potentially pivotal role in the EU's toolbox to manage the environment-trade nexus.

We study the impact of carbon pricing on CO2 emissions across five sectors for a panel of 39 countries over 1990-2016. Using newly constructed sector-level carbon price data, we implement a novel approach to estimate the changes in CO2 emissions associated with (i) the introduction of carbon pricing regardless of the price level; (ii) the implementation effect as a function of the price level; and (iii) post-implementation marginal changes in the CO2 price. We find that the introduction of carbon pricing has reduced growth in CO2 emissions by 1% to 2.5% on average relative to counterfactual emissions, with most abatement occurring in the electricity and heat sector. Exploiting variation in carbon pricing to explain heterogeneity in treatment effects, we find an imprecisely estimated semi-elasticity of a 0.05% reduction in emissions growth per average $1/metric ton (hereafter abbreviated as: ton) of CO2. After the carbon price has been implemented, each marginal price increase of $1/tCO2 has temporarily lowered the growth rate of CO2 emissions by around 0.01%. These are disappointingly small effects. Simulating potential future emissions reductions in response to carbon price paths, we conclude that – in the absence of complementary non-pricing policy interventions – carbon pricing alone, even if implemented globally, is unlikely to be sufficient to achieve emission reductions consistent with the Paris climate agreement.

This note describes the sources and methods used to calculate the emissions-weighted carbon price (ECP), the average price applied to CO2 emissions across all sources of emissions within a territorial jurisdiction by all carbon pricing mechanisms in force. It provides a transparent summary of the stringency of carbon pricing mechanisms in force within a given jurisdiction and allows for a straightforward comparison of that stringency across jurisdictions. It also describes the methodology behind two closely connected calculations: (i) sector-level carbon prices (by IPCC categories of emissions by sources and by categories of economic activity, respectively), (ii) industry- and country-level carbon costs.

Jurisdictions worldwide increasingly affirm their contributions to the Paris Agreement by pledging net-zero targets. We argue that delivering on net-zero targets compels a backward induction approach to climate policy, which stipulates that maximizing credibility should be the objective of policy pathways design. This implies choosing policies that strike a suitable balance between building commitment and attaining cost efficiency. Our argument rests on the premise that private investments play a key role for net zero, and that getting expectations right—through credible commitment to a policy pathway—is more relevant than getting the prices right to align the investments with net zero. We sketch the main elements for a regulatory strategy to put this approach into action. Net-zero pledges are emerging around the world, but to be consequential they must compel credibility as a core objective of climate policy design. This paper proposes an approach, named backward induction, that aims to maximize policy credibility by balancing building commitment and cost efficiency.

The Netherlands has committed to the EU's ambitious targets for cutting greenhouse gas emissions by 2030 and emissions neutrality in 2050 but at the same time is also vulnerable to sea-level rise and flood risks.This paper reviews recent mitigation policy initiatives in the Netherlands, including carbon levies for the industry and power sectors, energy and car tax reforms, and air passenger taxes, and recommends some modifications to these initiatives.The paper also provides assessments of hazards and macroeconomic risks from weather shocks and climate change and assesses the adaption plan against key principles on mainstream climate change into macro-fiscal planning.

This note describes the sources and methods used to construct the World Carbon Pricing Database (WCPD). This database contains a harmonized record of the sectoral coverage and prices associated with carbon pricing mechanisms implemented worldwide at the national and subnational levels over the period 1990-2020. The dataset follows IPCC 2006 sectoral disaggregation, which allows for a straightforward integration with other datasets following the same structure.

This paper considers the current proposal to extend the EU ETS to cover CO2 emissions from the combustion of heating and road transport fuels. We argue that increased coverage of the EU ETS, together with a binding cap consistent with a net zero trajectory, would be a powerful dynamic incentive to efficient emissions reduction. In addition, it would complement standards-based policies currently enacted in these sectors in several ways. Distributional implications remain a serious challenge to such an extension but several mechanisms are available to alleviate them.

Globally coordinated climate action has resulted in suboptimal GHG emission reductions and unilateral, second-best, climate policies have so far provided the bulk of these reductions. Using an open economy general equilibrium framework, we propose that the adoption of climate policy is partly determined by a process of policy diffusion whereby actions of foreign jurisdictions affect domestic conditions and policy decisions. We focus on diffusion mechanisms related to (i) access to improved foreign abatement technology and (ii) policy adoption by foreign jurisdictions. We apply our framework to the adoption of feed-in tariffs (FiT), renewable portfolio standards (RPS) and carbon pricing mechanisms. Overall, results highlight differences among policies. The evidence suggests that improved access to climate change mitigation technologies leads to earlier adoption of RPS and carbon taxes but not FiT or an emissions trading system (ETS). It also suggests that countries with common legacy institutions influence each other’s adoption decisions in the case of FiT.

The recent history of the Electricity Supply Industry (ESI) of major western economies was marked by two fundamental changes: a transition toward liberalised electricity markets and a policy-led push to decarbonise the electricity generation portfolio. These changes not only affected the pace and nature of innovation activity in the sector but also altered the set of innovative actors. The present paper provides a methodology to identify these actors, which we apply to priority patents filed at the UK Intellectual Property Office over the period 1955-2016. The analysis also indicates that (i) the recent increase in innovation activity originates overwhelmingly from upstream Original Equipment Manufacturers and (ii) innovation activity in `green' electricity supply technologies slowed down in recent years.

What accounts for the recent widespread slowdown in the productivity in advanced economies has remained a puzzle. One plausible explanation has been attributable to regulation, particularly anti-competitive regulations and environmental regulations. This paper focuses on the regulated energy network sectors by undertaking three sets of analysis in examining TFP in a sample of OECD countries over the period 1995-2016. First, using the growth accounting method, we find that there is a substantial productivity puzzle for the electricity and gas sectors, which exhibits a lower TFP growth than the whole economy over the period, and falls postfinancial crisis. Second, we identify the impact of regulation on productivity using a panel regression analysis. Our findings indicate that TFP levels seem weakly explained by changes to the competitive environment of the energy sector. Third, we show that energy and climate policy has negatively and significantly reduced energy sector productivity, at the same time as increasing capital input to the sector. We also find that the strength of energy and climate policy is positively correlated with lower aggregate TFP growth.

In virtually all jurisdictions that explicitly price carbon, its average (emissionsweighted) price remains low. Our analysis focuses on the political economy of its introduction as well as its stringency in an international panel of national and North American subnational jurisdictions. Results suggest that political economy factors primarily affected the former and that policy stringency is a highly persistent process. This has two important policy implications. First, successful passage of carbon pricing legislation will either come with contemporaneous compensation of incumbent, CO2-intensive, sectors or occur after their relative weakening. Second, if political economy constraints continue to prevail, climate change mitigation strategies will require multiple instruments.