Carbon Pricing and Investment

Department: Finance

Speaker: Per Stromberg (SSE) 

Room:T015

Abstract

How does carbon pricing affect investment in brown firms? During the period
2000–2019, the effective cost of emitting carbon rose by about 400 percent for
Swedish manufacturing firms. Despite lower operating margins, high-emission
firms significantly increased both total capital investment and the share of
investment dedicated to abatement. The response is concentrated among firms
with strong internal financial capacity. We find no comparable investment
increase in lower-emitting firms or in high-emission industries outside of Sweden.
Our results show that pricing CO2 emissions at a sufficiently high level can
incentivize brown firms to make green investments.