The Effectiveness of Carbon Pricing: A Global Evaluation

Abstract We estimate the effect of the staggered adoption of carbon pricing policies across the globe between 1990 and 2017 on per capita $$\text{CO}_2$$ emissions from fossil fuel combustion. We use recent econometric techniques robust to treatment effect heterogeneity. Our dynamic treatment effect estimations indicate gradual adjustments after implementation, resulting in a 19 to 23 percent decrease in $$\text{CO}_2$$ emissions after 10 years. These effects were primarily driven by resource substitution rather than improvements in energy efficiency and were not driven by short-term responses to carbon prices. Our results are robust to controlling for the potential effects of renewable energy policies. These results highlight the role of carbon pricing policies in steering medium-term expectations and complementing the climate policy mix.