How effective are carbon taxes in helping fight climate change?
This Misum Academic Insight is based on the research article “Carbon pricing and power sector decarbonization: Evidence from the UK” published in the Journal of Environmental Economics and Management, which was also recently featured in The Economist.
In order to mitigate climate change, every country across the globe must reduce their greenhouse gas emissions. Carbon pricing is widely regarded as the most efficient method for achieving emission reductions, however there is limited evidence demonstrating the actual impact of current carbon taxes or markets. This study contributes to this knowledge gap by estimating the causal impact of a carbon tax – the Carbon Price Support (CPS) on UK power emissions.
The study found that the introduction of the CPS to the UK power sector reduced carbon emissions by 20.5% - 26% on average per year between 2013 and 2017. Several factors contributed to achieving substantial emissions reduction while minimizing potential leakage, which should be considered when assessing the generalizability of the results. Several countries meet these criteria and could be potential candidates for replicating the UK experience.
Read the Misum Academic Insight here.
Marion Leroutier, Misum Postdoc Fellow