How Effective are Emission Taxes in Reducing Air Pollution?

Abstract

This paper examines the role of environmental taxes in reducing emission output. Using unique satellite data to observe levels of nitrogen dioxide (NO2), we leverage an emission tax introduction in 2013 in the Autonomous Community Valenciana. We find that this environmental tax reduced NO2 levels by 1.2%. While the effect does not depend on prevalence of dirty versus clean firms in an area, we find that the NO2 burden is reduced more substantially in areas with a higher density of firms and in areas with innovative and large firms.