This paper examines the impact of national carbon taxes on \(\hbox {CO}_{2}\) emissions. To achieve this, we conduct local projections on a cross-country panel dataset, aligning measures of carbon dioxide emissions with data on the introduction of carbon taxes and their associated prices. Importantly, we consider both territorial emissions—those emitted within a country’s borders—and consumption emissions—those emitted globally to satisfy domestic demand. We find that carbon taxes reduce territorial emissions over time but have no significant effect on consumption emissions. Our estimates are robust to propensity-score weighting adjustments, controlling for the role of other environmental policies, and are primarily driven by countries that are more open to trade. In contrast, we find that variation in carbon prices from the European Union’s Emissions Trading System have a negative impact on both territorial and consumption emissions. Overall, our findings underscore the limitations of national carbon pricing schemes and emphasize the importance of international cooperation in reducing global emissions.
