No. 1540 - Forward guidance in climate policy

Temi di discussione (Working papers)
by Riccardo Degasperi, Tara Hamadi, Filippo Natoli, Valerio Nispi Landi and Kevin Pallara
July 2026
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This paper examines the macroeconomic effects of the green transition in the European Union by exploiting changes in the regulation of the CO₂ Emissions Trading System (ETS) to identify two distinct shocks, associated respectively with the current stance and the expected path of climate policy. It also develops an economic model to rationalize the empirical findings.

Both shocks reduce CO₂ emissions at the cost of lower economic activity, but they have opposite effects on inflation: shocks to the current stance of climate policy raise inflation, whereas shocks to its expected path lower it. This evidence is consistent with the mechanism highlighted by the theoretical model, according to which an immediate tightening of climate policy is transmitted to prices through higher production costs, while an anticipated tightening of future policies depresses expected income and demand already in the present, exerting downward pressure on inflation.

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  1. 30 July 2026
    No. 1540 - Forward guidance in climate policy
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