Effectiveness of Carbon Pricing Policy: An Empirical Analysis
Effectiveness of Carbon Pricing Policy: An Empirical Analysis

Summary/Abstract: Carbon taxation has emerged as an effective policy tool for combating globalclimate change. This study investigates the impact of carbon pricing on carbonemissions and the carbon footprint (CF) in selected countries that were amongthe first to adopt carbon taxation, using panel data from 1992 to 2021. We applya range of econometric methods to address specific data challenges, includingcross-section dependence tests to explore interdependencies among countries;Delta homogeneity tests to check whether variables are homogeneous across thepanel; second-generation panel unit root tests (robust against cross-section depend-ence) to assess the stationarity of variables; and the Gegenbach et al. [2016] panelcointegration test (robust to both cross-section dependence and heterogeneity)to identify long-term relationships. We also use the panel Dynamic Ordinary LeastSquares Mean Group (DOLSMG) estimator to estimate long-run coefficients, con-sidering both heterogeneity across the panel and cross-section dependence. Finally,the Dumitrescu and Hurlin [2012] panel causality test —which also accounts forheterogeneity and cross-section dependence — is employed to examine causal rela-tionships. The results indicate that carbon pricing effectively reduces both car-bon emissions and CF. Moreover, the findings reveal a cointegrating relationshipamong the variables, as well as a unidirectional causal relationship from carbonpricing to both carbon emissions and CF.

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