Education Quality, Green Technology, and the Economic Impact of Carbon Pricing
Carbon pricing is increasingly used by governments to reduce emissions. The effect of carbon pricing on economic outcomes as well as mitigating factors has been studied extensively since the early 1990s. One mitigating factor that has received less...
| Main Authors: | , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2021
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/undefined/580021634238409921/Education-Quality-Green-Technology-and-the-Economic-Impact-of-Carbon-Pricing http://hdl.handle.net/10986/36426 |
| Summary: | Carbon pricing is increasingly used
by governments to reduce emissions. The effect of carbon
pricing on economic outcomes as well as mitigating factors
has been studied extensively since the early 1990s. One
mitigating factor that has received less attention is
education quality. If technological change that reduces the
reliance of production on emissions is skill-biased, then
carbon pricing may increase the skill premium of earnings
and subsequent wage inequality; however, a more elastic
skill supply through better education quality may mitigate
adverse economic outcomes, including wage inequality, and
enhance the effect of carbon pricing on technological change
and subsequently emissions. A general equilibrium,
overlapping-generations model is proposed, with endogenous
skill investment in which the average skill level of the
workforce can affect the need for emissions in an aggregate
production function. This study uses data on industrial
emissions linked to the Organisation for Economic
Co-operation and Development’s Programme for International
Assessment of Adult Competencies dataset for European Union
countries. The findings show that, within countries,
cognitive skills are positively associated with employment
in industries that rely less on emissions for production and
in industries that, over time, have been able to reduce
their reliance on emissions for production. In the estimated
general equilibrium model, higher cognitive skills reduce an
economy’s reliance on emissions for production. Having
higher quality education—defined as the level of cognitive
skills attained by workers per unit of cost—increases the
elasticity of skill supply and, as a result, mitigates a
carbon tax’s economic costs including output loss and wage
inequity, and enhances its effect on emissions reduction.
The implication is that investments in education quality are
needed for better enabling green technological innovation
and adaptation and reducing inequality that results from
carbon pricing. |
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