Conference Agenda

What is the effect of recent carbon price developments on emissions from heavy industries, after netting out carbon leakage through international trade? This paper first develops a comprehensive plant-level carbon pricing dataset covering aluminium, cement and steel industries in 140 countries. The new dataset reveals that the average plant-level carbon price for these industries increased by a factor of seven from USD 1.4 in January 2015 to USD 11 in December 2021. At the same time, carbon price asymmetries among trading partners increased by more than 350%. The paper then tests whether higher carbon prices have reduced plant-level emissions and whether rising carbon price asymmetries have affected countries’ trade flows and led to carbon leakage. Results suggest that, on average, a USD 1 increase in carbon prices reduces cement and steel plants’ emissions by 1.1% and raises imported emissions by 1.3%. Back-of-the-envelope calculations suggest that carbon leakage through international trade offset 13% of domestic emission reductions caused by carbon pricing.

Carbon markets have emerged in recent decades as one of the most important tools for curbing industrial greenhouse gas emissions, but they present a number of novel enforcement challenges as compared to more conventional pollution regulations---new regulators with narrow authority, lack of legal precedent, and more. To shed light on the practical issues involved in policing carbon markets, we present the first comprehensive analysis of the EU Emissions Trading System, a single program that was policed by 31 different national regulators. We find generally high rates of compliance coupled with low rates of enforcement, a pattern that is known in the literature as `Harrington's paradox.'Variation in the probability and severity of fines explain just one tenth of the variation in compliance rates. Meanwhile, other enforcement strategies that have been pointed to as resolutions to Harrington's paradox in other applications, such as `naming and shaming,' appear to have had little discernible effect.

The implementation of optimal environmental policies hinges on sufficient public support. We study the relative merit of regulation by “prices vs. quantities” by assessing the instrument choice between carbon taxes and emissions trading systems from the perspective of public perceptions. In a stated-choice experiment across 15,000 respondents from seven European countries, we elicit how citizens perceive the (non-)economic properties of carbon taxation and emissions trading, and study how they are linked to public support. Our analysis is guided by value-based, reason-based and motivated reasoning approaches to public choice. While there is considerable cross-country variation in the appraisal of both instruments, treatments effects of instrument framing are sizeable: carbon taxes are consistently more often perceived as increasing the state budget, harming the economy, and increasing costs of living and production, and emissions trading is more often perceived as easy to evade. Our results suggests that public opinion on carbon pricing is driven by perceptions around taxes being a ’tougher’ measure, and that emissions trading may be less prone to solely appeal to pro-climate segments of European societies.

Proponents of revenue refunding often argue that it increases the public acceptance of carbon pricing and prevents social hardship caused by an excessive price burden. However, research typically identifies green investments and subsidies as respondents’ preferred spending options. We conduct two survey experiments to examine whether providing information about carbon pricing and revenue refunding increases respondents’ support of the pricing instrument. First, we show that detailed information can indeed foster acceptance. Explaining the steering effect of carbon pricing as well as transparency about the administrative cost of the refund scheme prove most effective. Second, personalized feedback increases support for carbon pricing amongst respondents who can expect to be winners of the refund scheme, while losers are not negatively affected by learning about their outcome.