Conference Agenda

In the discussion surrounding mitigation policies, subsidy programs are often met with high public support, whereas carbon pricing is stagnating at low price levels due to the fear of public backlash. We conduct a survey experiment where respondents can select the shares of carbon pricing and subsidies in the climate policy mix to achieve a given abatement target in the building sector. Our findings show that the gap between public preferences and efficient climate policy making is at least partly driven by the asymmetric salience of costs and benefits of both instruments. Our information treatment reveals the individual cost of financing subsidies. The less respondents are directly affected by carbon pricing, the stronger they react to this information, reducing the share of subsidies in their preferred policy mix. The more costly subsidy programs are compared to carbon pricing, the stronger the effect. However, our study also shows that there is an inherent preference for subsidy programs that can be diminished but does not disappear when costs and benefits are made salient. Given the higher cost of subsidy schemes to achieve the same abatement effect as a carbon price, respondents on average prefer to pay EUR 4 to fund subsidy schemes rather than to pay an additional EUR 1 for carbon pricing.

This paper estimates the impact of electricity taxes on product prices in the German

manufacturing sector using product-level data on revenues and quantities from the

manufacturing census. To identify causal effects, I leverage a 2012 reform of tax exemption

rules, which reduced average energy prices by 15-20% for newly exempted firms relative

to matched controls. Difference-in-differences estimates show that output prices among

newly exempted firms dropped by approximately 3%, conditional on six-digit product-year

fixed effects. Moreover, I find no effect of tax exemptions on material factor shares, which,

under plausible assumptions, reflect changes in firms’ markups. Thus, my findings are

consistent with complete cost pass-through.

While most policymakers in developing countries recognize the need to tackle climate change, one of the key concerns in pursuing a stricter climate policy is that it could impair industrial competitiveness and thus slow down economic growth. This paper provides evidence on the impact of carbon abatement costs on firm performance in a developing economy using comprehensive microdata from Vietnam's manufacturing sector. For this purpose, we estimate firm-specific shadow prices of CO2 emissions as a holistic measure of carbon abatement costs, utilizing a state-of-the-art parametric directional distance function method that endogenizes directional vectors. The results of the instrumental variable estimation illustrate the trade-offs firms encounter between economic and environmental objectives as carbon abatement costs increase. In particular, we find that, on average, an increase in the shadow price of CO2 reduces revenues and employment, has no detectable effect on assets, wages, and profitability, but significantly increases productivity and energy savings. Moreover, the impact on firm performance varies considerably across sectors and firm characteristics. Adverse effects tend to be primarily concentrated in a subset of firms that are trade-exposed, energy-intensive, large or partially foreign-owned. In contrast, smaller firms are generally less affected and tend to absorb the additional costs more effectively.

When faced with making economic trade-offs between lower upfront purchase costs and lower operating costs, many consumers experience "capital bias", a phenomenon that is tantamount to discounting future costs excessively. Consumers may therefore end up with investments that are sub-optimal on a life-cycle cost basis. Capital bias can affect the purchase of many goods that could lower greenhouse gas emissions such as electric vehicles, heat pumps, or more efficient appliances. The beneficial effect of carbon pricing can be thwarted by capital bias when technology usage is price-inelastic and beneficial environmental gains occur mostly at the extensive margin (replacements) rather than the intensive margin (usage). Policies other than carbon pricing may be needed to induce consumers to shift to product choices that are superior on a life-cycle cost that includes external costs from greenhouse gas emissions (or other negative externalities). This paper provides a novel theoretical micro-economic analysis of the problem coupled with an investigation about competing policy interventions. Conventional carbon pricing can be ineffective in the presence of consumer myopia, while subsidy (or penalty) schemes that influence the purchase decision can be effective especially when they are conditioned on a usage threshold and/or offer incentives proportional to usage. There is scope for alternative policy designs that can overcome consumer myopia as a hurdle to adopting energy-efficient durable goods. The theoretical analysis is rounded out with empirical simulations focusing on electric vehicle adoption.