Industrial consequences of carbon pricing

Understanding the macroeconomic implications of putting a price on carbon

Climate change is one of the greatest challenges facing the world today. While carbon pricing is an effective method of reducing carbon emissions, its impact on industries and society is not clear yet. This research aims to identify the effects of carbon pricing on indicators such as production, employment, energy consumption and environmental-protection investments by studying firm-level data from Le comité du Secret Statistique, the French administrative authority. The observations from the research will help in creating effective carbon policies that take into account the possible adverse impacts of carbon pricing.



The challenge

Climate change is one of the biggest problems of the 21st century. There have been many innovative initiatives in the last few years to address this; including the attempt to “put a price on carbon”. The European Union Emissions Trading System (EU ETS) has established a carbon credit trading system with the aim of reducing greenhouse gas (GHG) emissions. This system has been instrumental in establishing a mechanism to regulate carbon trading and reducing GHG emissions.

However, it has been argued that putting a price on carbon emissions could result in adverse effects, such as negative effects on production, reduced employment and disproportional impacts on disadvantaged sections of society. Understanding this issue will help policy makers adjust climate policies accordingly and make carbon pricing more viable and socially equitable.

Two of the few studies conducted so far on this subject have produced conflicting observations; therefore, the issue warrants further research to identify whether there is a negative correlation between carbon pricing and economic outcomes.

The intervention

The study focuses on identifying the effects of changes in carbon prices on economy and society. The researchers propose to utilise firm-level data from the French administrative authority Le comité du Secret Statistique to better understand the patterns of energy consumption, environmental-protection investments and employment in response to changes in carbon prices. The approach not only takes into account the direct impacts seen in carbon-regulated installations, but also tracks the impact of carbon price changes on non-carbon regulated installations, such as energy prices.

The potential impact

The outcome of this research aims to provide clarity on the repercussions of carbon prices on economy, production and employment. It will help assess the effectiveness of carbon-pricing policies and compare the benefits and costs of pricing carbon. This understanding will be instrumental in determining changes required in carbon-pricing policy to make it more viable politically, economically and socially. If the findings show that disadvantaged groups are disproportionately affected by carbon pricing compared to better-off groups, distributional transfers can be implemented to make the impact more equitable.

The study will help both developed and developing countries identify the ripple effects of environmental policies on domestic industries and employment.