Abstract

We develop a novel measure of climate policy uncertainty based on newspaper coverage. Our index spikes during key U.S. climate policy events—including presidential announcements on international agreements, congressional debates, and regulatory disputes—and shows a recent upward trend. Using an instrument for plausibly exogenous uncertainty shifts, we find that higher climate policy uncertainty decreases output and emissions while raising commodity and consumer prices, acting as supply
rather than demand shocks. Faced with this trade-off, monetary policy does not accommodate climate policy uncertainty shocks, shaping their transmission. Firm-level analyses show stronger declines in investment and R&D when firms have higher climate change exposure.

Abstract

How do climate policies in developed countries spill over to the developing world? Using a novel dataset that combines multinational firms’ subsidiary locations with spatial emission data, we study how the carbon footprint of multinational firms in Africa changes in response to more stringent climate policies in Europe. Exploiting variation in multinationals’ exposure to carbon prices across European countries, we find that emissions of their African subsidiaries increase as the multinationals’ European operations face higher carbon prices. At the same time, multinationals reduce their domestic investment in Europe while worldwide investment remains unchanged — consistent with the notion that these firms shift some of their operations abroad. We confirm these results at the aggregate level, documenting a significant increase in economic activity and emissions in Africa. Policies to mitigate leakage should thus balance environmental concerns against development and equity considerations.

Abstract

This paper studies the economic impacts of carbon pricing. Exploiting institutional features of the European carbon market and high-frequency data, I document that a tighter carbon pricing regime leads to higher energy prices, lower emissions and more green innovation. This comes at the cost of a fall in economic activity, which is borne unequally across society: poorer households lower their consumption significantly while richer households are less affected. The poor are more exposed because of their higher energy share and, importantly, also experience a larger fall in income. Targeted fiscal policy can help alleviate these costs while maintaining emission reductions.