Carbon Pricing and Emissions: Causal Effects of Britain's Carbon Tax

38 Pages Posted: 21 May 2022

See all articles by Klaus Peter Gugler

Klaus Peter Gugler

Vienna University of Economics and Business; European Corporate Governance Institute (ECGI)

Adhurim Haxhimusa

affiliation not provided to SSRN

Mario Liebensteiner

affiliation not provided to SSRN

Abstract

This study estimates that the introduction of a carbon tax in the British power sector in 2013 and its two subsequent elevations in 2014 and 2015 led to a substantial decline in emissions by 26% (or 36.3 MtCO 2 ) in only three years. Identification of the causal effect relies on discontinuities in electricity generation induced by the policy changes and on a novel and detailed dataset of hourly emissions from all British fossil-fuel power stations. Notably, the carbon tax changed power plants’ marginal costs according to their emission intensity, so that “dirty” coal was pushed out of the market, whereas “cleaner” gas filled a large share of the production gap. Our findings suggest that even a moderate carbon tax can induce significant abatement, supporting the notion that a market-based climate policy should be viewed as a viable policy option. We also discuss limitations of this national tax, such as that it likely created emissions abroad via imports and the waterbed effect within the EU Emission Trading System.

Keywords: carbon price, Carbon Price Support, Carbon tax, Climate change policy, CPF

Suggested Citation

Gugler, Klaus Peter and Haxhimusa, Adhurim and Liebensteiner, Mario, Carbon Pricing and Emissions: Causal Effects of Britain's Carbon Tax. Available at SSRN: https://ssrn.com/abstract=4116240 or http://dx.doi.org/10.2139/ssrn.4116240

Klaus Peter Gugler (Contact Author)

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

HOME PAGE: http://www.wu.ac.at/iqv/mitarbeiter/gugler

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Adhurim Haxhimusa

affiliation not provided to SSRN ( email )

No Address Available

Mario Liebensteiner

affiliation not provided to SSRN ( email )

No Address Available

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