This article examines the impact of carbon pricing on international competitiveness for Azerbaijan, utilizing different cointegration methods such as, ARDLBT, CCR, DOLS, and FMOLS to the data spanning from 2000 to 2019. The results of the various cointegration approaches are in line with each other. The estimation results revealed that domestic crude oil price as a proxy of carbon pricing has a positive and significant impact on the real effective exchange rate in Azerbaijan. This implies that a rise in domestic crude oil price raises the real effective exchange rate (appreciation of national currency). An increase in real effective exchange rate indicates a loss in international competitiveness. The study concludes that the Azerbaijani policymakers should implement carbon pricing measures (implicit) to decrease CO2 emissions from energy heavy industries without harming the country's international competitiveness, as well as use more renewable energy in order to prevent higher pollution effects of fossil fuels.
Keywords: Azerbaijan; CO2; Carbon pricing; Cointegration tests; Competitiveness.
© 2022. The Author(s), under exclusive licence to Springer-Verlag GmbH Germany, part of Springer Nature.