The Economic Impacts of Carbon Taxation and Climate Change

Abstract

Climate change constitutes one of the biggest societal challenges today, and carbon taxation is one of the most important policies to curb carbon emissions. This dissertation investigates the economic impacts of carbon taxation, and the economic damages caused by extreme weather. Analyzing a reform in Sweden, the research shows that carbon taxation can be an effective tool to reduce emissions in the manufacturing sector. It also shows that it can have negative effects on firm performance, by decreasing revenue and employment. The larger negative effect on firms’ demand for workers without a high-school degree suggests that carbon taxation increases labor market inequality. However, complementary analyses show no signs of increasing unemployment rates in local labor markets that are more exposed to the reform. Labor markets therefore seem able to mitigate the negative effects on labor demand induced by carbon taxation. These results contribute to the understanding of the distributional costs of the green transition.