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Contents

Abstract/Resume 4

Environmental Policy Stringency and CO₂ emissions: Evidence from cross-country sector-level data 7

Introduction 7

Data and methodology 10

Empirical framework 12

The effect of environmental policies on emissions 14

Robustness checks and extensions 17

Estimated emission reduction potential across countries 20

Cross-country analysis 20

Country-sector analysis 22

Illustrative forward-looking emission reduction scenarios 24

Conclusions and policy implications 26

References 28

Annex A. Additional tables and figures 31

Annex B. Within country results 33

Table 1. Variables used and descriptive statistics 12

Table 2. Regression results 14

Table 3. Regression results for sub-indices of the EPS 16

Table 4. Robustness checks and extensions 17

Figure 1. The OECD Environmental Policy Stringency (EPS) Index over time and countries 11

Figure 2. Number of sectors with available data per country 12

Figure 3. A higher EPS is associated with lower emissions 15

Figure 4. Emission reduction potential from moving towards the 2020 environmental policy stringency frontier 21

Figure 5. Sectors' emission reduction potential for the OECD average 22

Figure 6. Drastic and rapid increase in environmental policy stringency is necessary to lower emissions 25

Annex Tables

Table A.1. Regression results for employment 32

Annex Figures

Figure A.1. The structure of Environmental Policy Stringency indicator (EPS) 31

Figure A.2. Cumulative impacts of the EPS for different fossil fuel intensities 31

Figure A.3. Share of observations at or above the 90th percentile of fossil fuel intensities across countries and sectors 32

Figure B.1. Impacts of one unit increase in the EPS on the top 5 emitting sectors and all others 33

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