This dissertation analyzes the relationship between environmental regulation, energy market developments, and economic performance. It shows that the economic impacts of the recently adopted environmental and climate policy in Europe have been modest. Moreover, the results indicate the important role the political economy plays for the design of environmental regulation. The thesis also sheds a light on the economic significance of energy market developments. It highlights the relevance of the EU carbon market for the financial performance of European electricity generators and demonstrates the importance of oil market developments for the economy. It suggests that the oil market is highly relevant to the pricing of energy stocks. In showing that unemployment in Germany is affected by oil price shocks, the dissertation furthermore provides empirical evidence on the impact of oil market developments to the macroeconomy.