Evidence on climate policy, carbon dioxide emissions and inflation

There is no consensus in the theoretical literature on the magnitude and direction of the effects of climate variables and climate policies on inflation, and there is only scant empirical evidence. This paper studies the relationship between climate policy, carbon dioxide emissions and inflation at the country level for a large number of 55 countries. A main finding is that better climate policy rankings, reflecting both national and international climate policy, tend to be associated with lower inflation across countries. This suggests that conducting better climate policy need not be held back by concerns that it would lead to higher inflation. Moreover, higher carbon dioxide emissions tend to be associated with higher inflation at the country level. This suggests that climate policies that manage to reduce carbon dioxide emissions would not lead to adverse effects of higher inflation.