Ambrogio Cesa-Bianchi, Alex Haberis, Federico Di Pace and Brendan Berthold
To achieve the Paris Agreement objectives, governments around the world are introducing a range of climate change mitigation policies. Cap-and-trade schemes, such as the EU Emissions Trading System (EU ETS), which set limits on the emissions of greenhouse gases and allow their price to be determined by market forces, are an important part of the policy mix. In this post, we discuss the findings of our recent research into the impact of changes in carbon prices in the EU ETS on inflation and output, focusing on how the emissions intensity of output – the quantity of CO2 emissions per unit of GDP – affects the response. Understanding these economic impacts is important for the Bank’s core objectives for monetary and financial stability.
