Date of Award

2024

Document Type

Honors Thesis (Open Access)

Department

Colby College. Economics Dept.

Advisor(s)

Michael Donihue

Second Advisor

Jen Meredith

Abstract

Climate change poses a significant threat to global ecosystems and human societies, driven largely by CO2 emissions from various economic activities. This macroeconomic cross-country study empirically assesses the effectiveness of carbon pricing in reducing CO2 emissions across three periods: 2012-2017, 2015-2019, and 2015-2020. Building on the foundational research by Best et al. (2020), the analysis extends to more recent data, capturing the evolving impacts of carbon pricing amid changing global economic and policy landscapes. A key advancement in this research is the creation and integration of two comprehensive indexes—a performance index and a policy index—constructed from 14 environmental performance or policy variables. These indexes control for a broader set of environmental and economic factors, thereby addressing omitted variable bias and enhancing the robustness of the analysis. The results strongly support carbon pricing as an effective tool for reducing CO2 emissions. However, the direct impact of carbon pricing is less significant when the performance and policy indexes are included, indicating that its effectiveness is intertwined with other environmental policies. This study emphasizes the importance of maintaining carbon pricing, adopting comprehensive policy frameworks, tailoring approaches to local contexts, and improving data collection standards. This research also offers a holistic view of policy impacts and sets the stage for future studies on the complexities of environmental policies in mitigating climate change.

Keywords

Climate change, carbon pricing, environmental policy, policy performance, index, CO2 emission reduction, environmental economics, cross-country analysis

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