Does pricing carbon mitigate climate change? Firm-level evidence from the European Union emissions trading scheme

Jonathan Colmer (), Ralf Martin, Mirabelle Muûls () and Ulrich Wagner

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: In theory, market-based regulatory instruments correct market failures at least cost. However, evidence on their efficacy remains scarce. We evaluate the European Union Emissions Trading Scheme (EU ETS) - the world's first and largest market-based climate policy. Using administrative data on almost 4,000 French manufacturing firms, we estimate that the EU ETS induced regulated firms to reduce carbon dioxide emissions by 8-12% compared to unregulated firms after the Pilot phase, a necessary condition for climate change mitigation. These reductions account for 26% of the concurrent decline in aggregate industrial emission in France. We do not estimate any negative effects on the scale of production; instead we find that firms reduced the emissions intensity of value added by making targeted investments. We find no evidence that firms outsourced production to unregulated firms or markets. Collectively, these findings suggest that the EU ETS induced global emissions reductions, a necessary and sufficient condition for mitigating climate change.

Keywords: climate; externalities & environmental regulation; trade and environment (search for similar items in EconPapers)
JEL-codes: F18 H23 Q58 (search for similar items in EconPapers)
Date: 2020-11-17
New Economics Papers: this item is included in nep-ene, nep-env, nep-eur and nep-reg
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Citations: View citations in EconPapers (18)

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Related works:
Working Paper: Does Pricing Carbon Mitigate Climate Change? Firm-Level Evidence From the European Union Emissions Trading Scheme (2023)
Working Paper: Does pricing carbon mitigate climate change? Firm-level evidence from the European Union emissions trading scheme (2023)
Working Paper: Does Pricing Carbon Mitigate Climate Change? Firm-Level Evidence from the European Union Emissions Trading Scheme (2022)
Working Paper: Does Pricing Carbon Mitigate Climate Change? Firm-Level Evidence From the European Union Emissions Trading Scheme (2020)
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