Conference Agenda

Many socially desirable policies are not implemented because of their ex-ante unpopularity, but this unpopularity may be overcome through experience with the policy. In this paper, we examine how opposition to carbon pricing in the state of Washington turned into support after voters experienced a cap-and-trade policy with revenues earmarked for environmental purposes – "cap-and-invest." Analyzing voting behavior at the census block group level, we observe that support varies by political affiliation as expected, but experience consistently increases support across the board. Using a proprietary survey, we further show that the increase in support among voters in Washington state is specific to the cap-and-invest policy they experienced; support for carbon pricing or climate policies more generally remained unchanged.

This paper investigates the persistent positive futures-spot price spread observed in the EU Emissions Trading System. We develop a stochastic allowance market model with heterogeneous, risk-averse regulated firms and a representative non-regulated, financial actor. All agents can trade spot allowances, bank them, and trade futures contracts, but only regulated firms can abate emissions and have compliance obligations. While firm heterogeneity is central for understanding hedging behavior, we show that when regulated firms' aggregate hedging demand is net long, equilibrium futures prices exceed the spot price adjusted for the risk-free interest rate, generating a positive price spread. This prediction is tested empirically using an error correction model estimated on weekly data from 2018-2025, leveraging Commitment of Traders reports to compute a proxy for hedging pressure. This confirms a significant long-run relationship between net hedging demand and the price spread. The paper offers a coherent explanation of futures premia in carbon markets and illustrates how firm heterogeneity and risk-management behavior shape carbon price dynamics.

This paper studies how firms adapt to climate policy. It quantifies the extent to which observed energy-efficiency investment can be attributed to regulation under the EU Emissions Trading Scheme (ETS). I develop a dynamic optimisation model in which firms choose energy-efficiency investment alongside production inputs. The model captures key features of an ETS, including the endogenous determination of firms’ regulatory status. I estimate the model using German firm-level data with detailed measures of energy consumption and energy-efficiency investment. I then conduct a counterfactual analysis by simulating an economy without the ETS. The results show that approximately 9 % of observed energy-efficiency investment during 2011–2018 is attributable to the EU ETS.

This paper analyzes the short-run welfare and distributional effects of the European Union’s Emissions Trading System 2 (ETS2) using a partial-equilibrium model with heterogeneous households and limited short-run substitution away from fossil fuels. In this setting, ETS2 operates as a binding quantity constraint, with permit prices reflecting fossil fuel scarcity and fully passing through into final energy prices. We show that ETS2 reduces fossil fuel consumption and lowers household welfare, with disproportionately larger losses for low-income households due to higher energy expenditure shares. We then compare alternative revenue-recycling schemes that leave the emissions cap unchanged: a per-unit fossil fuel subsidy and lump-sum transfers. While the subsidy distorts marginal incentives and generates ambiguous welfare effects, lump-sum transfers preserve price signals and deliver transparent welfare improvements. Importantly, ETS2 acts as a binding environmental safety net: by capping total fossil fuel use, it ensures environmental compliance regardless of redistribution design.