Do Carbon Prices Limit Economic Growth?

Abstract

The most common counterargument to taxing carbon emissions is that the policy has a negative impact on economic growth. The author tests the validity of this argument by visualizing the enactment of carbon prices on gross domestic product per capita from 1979 to 2018 and presenting a formal fixed-effects regression analysis of panel data. No connection is found between carbon price implementation and diminished economic growth. This outcome is primarily due to policy design and the general nature of economic growth. The author concludes that this counterargument to enacting carbon prices exists only because of misunderstandings of economic growth and ideology.

Drivers of Carbon Price Adoption in Wealthy Democracies: International or Domestic Forces?

“…For this reason, carbon prices (taxing emissions) are the favored policy instrument of experts (Cramton et al 2017; Nordhaus 1994; Sandbu 2020) and are the primary policy recommendation from the latest report of the Intergovernmental Panel on Climate Change (Rogelj et al 2018). Furthermore, their adoption does not limit economic growth, a common conservative critique (Driscoll 2020), suggesting that their implementation offers a smoother decoupling of emissions from economic growth. Thus, the policy is effective, is approved by experts, and does not limit national prosperity.…”

The Critical Role of Energy Intensity in Decarbonizing ASEAN: Integrating Growth and Emissions Reductions

“…On the other hand, the issue of climate change and carbon pricing create additional restrictions and exacerbate problems in developing countries' energy sectors. Its application has the potential to eliminate a product's competitiveness and decrease the gross domestic product (Diamond and Zodrow, 2018;Driscoll, 2020). At the same time, technologies to improve energy efficiency across all sectors can help moderate energy demand growth.…”

Carbon pricing and COVID-19

“…In Switzerland, a proposal of an increased carbon tax and the introduction of an aviation tickets tax were narrowly rejected by 51.6% of voters in June 2021 -a proposal which would have helped cut Swiss emissions in half by 2030 as compared to 1990 levels. The proposal would have increased the maximum carbon tax rate from CHF 120/tCO2 (EUR 110/tCO2) in 2022 to CHF 210/tCO2 (EUR 195/tCO2) until 2030, resulting in the increase of the tax if the emissions reduction target was not reached (Carbon Pulse, 2021 [233]). In Mexico, the government's introduction of gazolinazo in 2017a 20% increase in fuel prices -led to citizen protests and blocked streets (The Guardian, 2017 [234]).…”