Carbon pricing, economic resilience, and transport decarbonization: evidence from Finland

This study evaluates the macroeconomic impact of carbon taxation in Finland’s transport sector. Using a mixed-methods approach, the synthetic control method shows a 29.5% decline in transport-related carbon emissions, equivalent to 1.07 metric tons per person per year, following the introduction of higher carbon taxes. Complementing this result, the structural vector autoregression model shows a 5% long-term positive impact on per capita gross domestic product. By 2030, gasoline consumption is projected to decline by approximately 10%, while fuel prices are projected to increase by 8%, reflecting price-driven changes and a moderate demand response. These results underscore the need for sector-specific strategies, trust in institutions, and innovative revenue recycling to boost the effectiveness of carbon pricing. The Finnish experience shows that carbon taxes can reduce emissions without affecting economic growth, especially when the proceeds are reinvested in low-carbon infrastructure and social equity programs. This study supports a flexible, data-driven carbon-pricing system that includes adaptive redistribution strategies and targeted measures. Overall, this study suggests that well-designed carbon pricing can enhance economic stability as the economy transitions to a low-carbon economy.