Abstract:

Political instability can undermine the credibility of climate targets by disrupting expectations of future carbon policy. We study how such expectations form and adjust using a learning-to-forecast experiment in which subjects predict carbon taxes at multiple horizons. Their incentivised forecasts feed into a macro model where expectations determine realised carbon prices and low-carbon investment. Treatments introduce small or large shocks to the government’s commitment to climate goals. We find that commitment shocks generate systematic and horizon-dependent overreactions, with large negative shocks producing especially persistent pessimistic revisions. These behavioural responses slow the low-carbon transition relative to benchmarks with fully informed rational expectations. The results reveal an expectations-amplification channel through which political instability can distort transition dynamics.

About the SEEMS Seminars

Over the past years the number of researchers at UvA Economics & Business that work on Environmental Economics and Sustainability has increased significantly. To provide a natural meeting place for them, we have started a series of Seminars on Environmental Economics and Management of Sustainability (SEEMS).

The series’ first main goal is to increase the visibility of Environmental Economics and the Management of Sustainability at UvA and the visibility of UvA within these fields. Its second main goal is to give PhD candidates working on topics in these fields access to the frontier of knowledge, and to provide them with a training ground where they can present and discuss their ideas.

Are you interested?

This will be a hybrid seminar. If you are interested in joining this seminar, please send an email to the secretariat of ASF at asf-feb@uva.nl.