Abstract. Despite the commitments of the 2021 UN Climate Change Conference, countries’ climate mitigation policies are not enough to meet their ambitious emissions reduction targets. This column puts forward a framework for designing comprehensive decarbonisation strategies that promote growth and social inclusion. A policy mix based on three components is needed: (1) emission pricing, (2) standards and regulations, and (3) complementary policies that offset distributional effects. A robust and independent institutional framework and credible communications campaigns are key to managing policy constraints and enhancing public acceptance of mitigation policies.
OECD page; Vox.EU article; Brochure for policymakers
Abstract Denmark has been a frontrunner in policies that reduce greenhouse gas emissions and now plans to cut emissions by 70% by 2030 from 1990 levels and to achieve carbon neutrality by 2050. Such ambition induces halving emissions from 2019 levels and making the same emission abatement effort in ten years than the past thirty years. Cutting emissions at such fast pace will be challenging with substantial disruptions and macroeconomic consequences. A balanced mix of pricing policies, public investment, regulation and enabling policies should allow smoothing the potential economic and social shocks and accompanying the reallocation of resources. This paper investigates further sectoral climate strategies in Denmark. In the energy sector (electricity and district heating), past progress made to ramp up clean technologies provides a good blueprint to achieve further decarbonisation, but the focus will need to be put soon on lowering reliance on woody biomass. In the transport sector, emissions have continued to increase despite the shift to more fuel-efficient vehicles, highlighting the need for more transformative policies to expand alternatives to individual car uses. In agriculture, little has been done so far to cut emissions, especially from livestock. The sector is subject to leakage risks, but nonetheless should be encouraged to transform its practices. Helping farmers to monitor their GHG emissions should be combined with more stringent regulation.
Abstract. This paper estimates the long-run elasticity of emissions and carbon-related government revenues to carbon pricing. It is based on the OECD Effective Carbon Rates database, the most comprehensive cross-country longitudinal database on direct and indirect carbon pricing. Econometric estimates suggest that a EUR 10 increase in carbon pricing decreases CO2 emissions from fossil fuels by 3.7% on average in the long term. In such a scenario, carbon-related government revenues would triple at global level, though over time they are expected to dwindle as additional increases in carbon pricing result in further reductions in emissions. Broadening carbon pricing to currently unpriced emissions contributes to two thirds of the effects on emissions and revenues. At the country level, emissions and government revenues responses differ depending on countries’ sectoral structure and fuel sources. Dynamic simulations based on these estimates reveal that even large effective carbon rates (about EUR 1000 per tonne by late 2030s) will not suffice to meet net-zero emission targets. A sensitivity analysis shows that this result is robust to a large range of elasticity estimates. Reaching net zero then calls for complementary policies aiming at broadening and raising carbon prices, and drastically increasing the substitution of clean energy sources for fossil fuels through innovation and reallocation.
Abstract. This paper empirically investigates the effect of the European Emission Trading Scheme (EU ETS) on cross-country investments, employing a model of the firm's investment decision in conjunction with novel firm-level data. In contrast with the previous literature, I stress the importance of firms' heterogeneity in the analysis. I derive conditions on the firms' optimal emissions to construct a measure of investment sensitivity to carbon pricing from observed pollution data. This allows me to identify the effect of the EU ETS on international investments, by comparing the expected profits from investing in several different countries. I find that investments react to carbon pricing and that the effect is stronger for more polluting investments. However, the aggregate amount of diverted investments is small. I moreover show that the lost investments do not justify, alone, the generous compensations scheme aimed at retaining investments.
"The Impact of the European Carbon Market on Firm Productivity: Evidence from Italian Manufacturing Firms." with Sara Calligaris and Giulia Pavan
Abstract. The key policy adopted by the European Union to reduce greenhouse gas emissions is the Emission Trading System: a market for rights to emit. The introduction of this policy has raised concerns about possible detrimental effects on firms' production through an increase in polluting costs, unless firms change inputs or increase their productivity. In this paper, we provide evidence of the causal impact of this European policy on firms' input choices and total factor productivity. We combine structural estimation of firms' production function and techniques for policy evaluation to estimate the effect of the EU ETS on Italian manufacturing firms. Our results show a slightly negative effect of the policy on productivity, albeit the effect is heterogeneous across sectors. Our results are consistent with fuel switching, rather than a substantial change in the production process.
"Social Structure and Preferences in a Common Pool Resource Experiment". with George Joseph, Gautam Gupta, Barry Sopher, and Quentin Wodon
Abstract. We study the effect of providing heterogeneous harvesting rights to a resource on social preferences in a lab-in-the-field experiment. In the underlying game, neither variations in the actions nor payoffs identify social preferences. We overcome this problem estimating the empirical game in a two-steps procedure, which can be applied more generally to estimate other-regarding preferences. We find that the models with social preferences explain better the data than the self-regarding model and that altruism explains it better than inequity aversion. When we asymmetrically increase harvesting rights, individuals increase their other-regarding behavior, becoming less selfishly. When we introduce a proportional sharing rule, this effect is further increased, but participants become equity averse if their payoff is lower than the others'.
"Housing rent and road pricing in Milan: Evidence from a geographical discontinuity approach." with Marco Percoco, Transport Policy, 2015, 44: 108-116
"The Effect of Audit Activity on Tax Declaration: Evidence on Small Businesses in Italy." with Elena D’Agosto, Marco Manzo, and Stefano Pisani, Public Finance Review, Vol 46, Issue 1, 2018
"A discussion of the market and policy failures associated with the adoption of herbicide-tolerant crops." with Marion Desquilbet and David Bullock, 2019, International Journal of Agricultural Sustainability, 1: 1-12