Conference Agenda

This paper compares welfare under a carbon tax and cap-and-trade when the economy is hit by productivity uncertainty shocks, modeled as mean-preserving increases in the volatility of sectoral productivity innovations. I build a two-sector New Keynesian model with a representative household, non-polluting clean producers, polluting dirty producers, nominal rigidities, and endogenous abatement. A tax fixes the carbon price, while a cap fixes emissions and lets the permit price adjust endogenously. I find that (i) cap-and-trade yields higher welfare under dirty-sector uncertainty but lower welfare under clean-sector uncertainty; (ii) the magnitude of the welfare gap is governed by the ease of adjusting abatement; and (iii) the two policies are otherwise close substitutes when abatement is freely adjustable, with taxes and caps generating near-identical aggregate dynamics and differing mainly in emissions and abatement.

This paper examines how firm-level heterogeneity in energy efficiency shapes labor reallocation in response to carbon taxation. Using French administrative data, we document a strong positive correlation between value-added per unit of labor and per unit of energy, with more energy-efficient firms exhibiting higher hiring rates. To analyze the impact of an increase in carbon taxation, we develop a structural search and matching model incorporating firm differences in productivity, energy intensity, and energy mix. We find that a carbon tax operates as a firm-specific productivity shock, generating heterogeneous employment responses and inducing substantial worker reallocation across firms. While labor market frictions give rise to short-run employment and wage adjustments, the resulting reallocation toward more energy-efficient and lower-emission firms amplifies the environmental impact of the policy.

This paper analyzes the macroeconomic consequences of the structural change in the European Union Emissions Trading System (EU ETS) around 2019, when prices shifted from a low, ineffective regime to a high, credible regime. We utilize a customized DSGE model with occasionally binding constraints for the German economy to examine the effects of this transition. We quantify the effects of the Market Stability Reserve (MSR) implementation on output, inflation, consumption, and investment. Our findings show that the MSR reduces carbon price volatility in response to macroeconomic shocks and thereby also dampens aggregate dynamics compared to a fixed cap-and-trade system. This differences have potential welfare implications and offer critical insights for the successful implementation of the upcoming EU ETS II.

Many renewable energy projects were cancelled after the Russian invasion of Ukraine, just as energy prices spiked, since their costs rose even faster than their potential revenues. What does this say about the transition to a fully renewable energy system? In Comerford & Spiganti (2025) we investigate adjustment frictions, whereas here I propose a long-run mechanism. With a booming global economy powered by fossil fuels, manufactured goods are plentiful, and economies of scale makes them cheap; when fossil fuels are withdrawn, the contraction in the global economy means productivity in manufacturing is much lower, making capital intensive renewables permanently unprofitable.