Carbon pricing and distributional effects on firms

European climate strategy aims at fixing a unique price for carbon so as to implement the ‘polluter pays principle’ and signal the real cost of releasing greenhouse gases. The ultimate goal is, of course, to cut down on emissions and combat climate change. The price signal is designed to induce consumers and firms to change their energy mix towards new products and inputs with a lower environmental impact. Pursuing this ambitious goal involves the use of an enormous amount of resources ¹ and, at the same time, a significant change in consumers and firms’ habits and behaviour, which environmental policy should stimulate with all the available instruments. An evaluation of the distributional impact of these policies appears vital, not just from a fair distribution standpoint, but also so as to consider the political feasibility of climate policy.