Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/297325 
Year of Publication: 
2024
Series/Report no.: 
ECB Working Paper No. 2885
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
The control of carbon emissions by policymakers poses the corporate challenge of developing an optimal carbon management policy. We provide a unified model that characterizes how firms should optimally manage emissions through production, green investment, and the trading of carbon credits. We show that carbon pricing reduces firms' emissions but also induces firms to tilt towards more immediate yet transient types of green investment-such as abatement as opposed to innovation-as it becomes costlier to comply. Green innovation subsidies mitigate this effect and complement carbon pricing in ensuring innovation-driven sustainability. Perhaps surprisingly, we show that carbon regulation need not reduce firm value.
Subjects: 
Carbon pricing
Carbon Emissions
Carbon Abatement
Green Innovation
Sustainability
JEL: 
G30
G31
G12
D62
O33
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-6365-7
Document Type: 
Working Paper

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