Category: Climate policy

International spillovers from climate policy

Francesca Diluiso and Aydan Dogan

To achieve the emissions reduction targets outlined in The Paris Agreement, many economies have started implementing various types of climate policies. These policies, which include subsidies for green production or investment, carbon taxes, and cap and trade schemes, are crucial for guiding the transition to a greener economy. However, by altering the cost and the emission intensity of domestically produced goods, they may have an impact on inflation, output, and international trade flows. This blog post explores the spillover effects due to the implementation of climate policy in a single country. We examine two major types of policies currently implemented and discussed worldwide: green subsidies and carbon taxes.

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Beyond emissions: the interplay of macroprudential regulation and climate policy

Francesca Diluiso, Barbara Annicchiarico and Marco Carli

While climate change is often seen as a long-term concern, climate mitigation policies can have different short-term effects, since they affect the transmission mechanism of conventional macroeconomic shocks. In a new working paper, we show that cap-and-trade schemes lead to lower volatility in GDP and financial variables, and result in reduced welfare costs of the business cycle, when compared to the more widely known carbon taxes. As we find that these welfare differences are primarily driven by distortions in financial markets, we argue that countercyclical macroprudential regulation, even without any green-biased component, can effectively align the welfare performance of these policies and mitigate their short-run costs.

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