How effective are emission taxes in reducing air pollution?

This paper examines the role of environmental taxes in reducing air pollution. Using unique satellite data to observe area-wide levels of nitrogen dioxide (NO2), we leverage an emission tax introduction in 2013 in the Comunidad Valenciana. We find that this environmental tax reduced NO2 levels only modestly 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 decreased more substantially in areas with a higher density of firms and in areas with innovative and large firms. Overall, our results imply that emission taxes are not very effective in reducing air pollution