The Role of Technology in Emission Reduction Effect of Carbon Pricing: A Predictive Approach

We employ a predictive approach to assess the combined effects of carbon pricing and technological advancements on the predictability of carbon emissions. Our model, which integrates both carbon pricing and technological innovation, demonstrates remarkable accuracy in forecasting emissions. The strength of our findings—supported by both in-sample and out-of-sample forecasts across various time horizons—suggests that the synergistic effects of carbon pricing and technological progress could be crucial for substantially reducing global <mml:math xmlns:mml="http://www.w3.org/1998/Math/MathML" display="inline"> <mml:msub> <mml:mtext mathvariant="normal">CO</mml:mtext> <mml:mn>2</mml:mn> </mml:msub> </mml:math> emissions.