Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/311107 
Year of Publication: 
2024
Series/Report no.: 
ECB Working Paper No. 2958
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
We study the heterogeneous pass-through of carbon pricing on investment across firms. Using balance sheet data of 1.2 million European firms and identified carbon policy shocks, we find that higher carbon prices reduce investment, on average. However, less carbon-intensive firms and sectors reduce their investment relatively more compared to otherwise similar firms after a carbon price tightening shock. Following carbon price tightening, firms in demand-sensitive industries see a relative decrease not only in investment but also in sales, employment and cashflow. Moreover, we find no evidence that higher carbon prices incentivise carbon-intensive firms to produce less emission-intensively. Overall, our results are consistent with theories of the growth-hampering features of carbon price increases and suggest that carbon pricing policy operates as a demand shock.
Subjects: 
Carbon pricing
public policy
climate crisis
corporate finance
economic growth
JEL: 
Q54
Q58
D22
H23
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-6768-6
Document Type: 
Working Paper

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