The role of emission disclosure for the low-carbon transition

Abstract

We quantify the importance of emission disclosure for climate policies in a DSGE model for the euro area. A low-carbon energy and a fossil energy sector contribute to production and are financed by balance-sheet constrained intermediaries. We show that imperfect information on emissions by households (savers) is sufficient to create a palpable role for disclosure improvements. The underestimation of emissions from fossil energy firms (imperfect disclosure) provides these firms with too much funding. While improving disclosure in isolation has limited effects, it provides clear benefits in connection with higher carbon taxes: For a carbon tax increase by 50 euro/ton CO${}_2$, improving disclosure by 20 percentage points reduces the GDP costs by up to 14%. Over six years, this implies GDP benefits of 47 bn euro.