The Economy’s Response to Potential Climate Policy
Abstract: Uncertainty about U.S. climate policy in the future creates risk that affects the investment decisions businesses make today. If firms expect future policy to raise the cost of carbon emissions, then they could react to this by both shifting investment towards cleaner capital and reducing overall investment. These two responses lead to lower emissions, even if no actual climate policy is in place. Evidence suggests that this risk encourages companies to voluntarily reduce emissions using internal carbon prices and other mechanisms.
File format is application/pdf
Description: Full text – article PDF
Provider: Federal Reserve Bank of San Francisco
Part of Series: FRBSF Economic Letter
Publication Date: 2021-06-21