Does Carbon Pricing Work? Evidence from Swedish Firms
Sweden was a pioneer in implementing a carbon tax in 1991. Since then, total carbon emissions from manufacturing have decreased by over 30%, from 10,495 kilotonnes in 1990 to 7,299 kilotonnes in 2015. This significant decrease can be attributed to the carbon tax, with varying degrees of success observed across different industries.
CO2 emissions from manufacturing 1990 vs 2015
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Sweden’s CO2 emissions from manufacturing 1990
10495 kton CO2
CO2 emissions 2015
CO2 emissions 1990
*Low emitting sectors stand for less than 4% of Sweden's total manufacturing emissions. Industries included in these are; Tobacco, Apparel, Leather, Printing, Pharma, Plastic, Electronics, Electrical Equipment, Transport Equipment, Furniture, Other, Repair/installation.
Emission intensity - an alternative measure
While Sweden's overall emissions from manufacturing have declined significantly, some industries may have experienced an increase in emissions. This doesn't necessarily indicate a failure of the carbon tax, as industries may have improved their emissions per unit but expanded production, leading to an overall increase. A better way of looking at progress is through emission intensity.
Emission intensity is calculated by dividing the CO2 emissions from an industry by its sales. It measures the efficiency of the industry in using energy and other resources. The lower the emission intensity, the less resources it uses and the lighter its environmental footprint is.
Insight
A better way of looking at progress is through emission intensity. Emission intensity is an industry’s CO2 emitted divided by its sales (kg/SEK).
Which industries have improved their emission intensity?
Overall, there is a correlation between how much CO2 an industry emits and how hard it is for this industry to reduce its emission intensity.
Insight
Big emitters typically have a harder time lowering their emission intensity.
Change in emission intensity between 1990 - 2015
Size of the circle represents shares of total CO2 2015
The critical role of capital in driving emissions reductions among major polluters
How strongly industries respond to carbon pricing differs. Various factors can impact their response, including the challenges they face in lowering emissions, particularly those with intricate production processes, or limited access to cleaner alternatives.
The size of an emitter and its capital access are also critical determinants of its response to carbon pricing. Understanding these dynamics is crucial for policymakers to design effective carbon pricing policies that effectively incentivize emissions reduction while considering the unique circumstances of different industries.
Insight
While large emitters are more reliant on capital to effectively reduce their emissions, smaller emitters can often achieve substantial progress regardless of their access to financial resources.