The Impact of Green Policies on Local Economic Performance: Evidence from the EU ETS

Ireri Hernandez Carballo, Gian Maria Mallarino and Marco Percoco

No 27, GREEN Working Papers from GREEN, Centre for Research on Geography, Resources, Environment, Energy & Networks, Universita' Bocconi, Milano, Italy

Abstract: Environmental policies such as the European Union Emissions Trading System (EU ETS) raise concerns about their impact on local employment and competitiveness. Yet, existing EU ETS studies focus on firm-level outcomes during the initial phases of the program. We construct a panel dataset of about 900 European provinces across 2008 to 2020 to assess the effects of a significant policy change in Phase 3 of the EU ETS. Specifically, we investigate how the changes in the allocation of free allowances affected local economies in terms of employment, gross value added (GVA) and productivity. By assembling a novel dataset and measuring the net change of paid emissions from Phase 2 to Phase 3 we construct a measure of exposure to the policy change at the NUTS-3 level. Using synthetic difference-in-differences, we find that being more exposed to the EU ETS is associated with a statistically significant contraction of employment and GVA in the more carbon-intensive industries. Our results are complemented with evidence on a sizeable reduction in carbon emissions and mild impact in terms of regional disparities in the European Union.

Keywords: EU ETS; Carbon policies; CO2 Emissions; Regional Economics; Economic Geography (search for similar items in EconPapers)
Pages: 39
Date: 2025
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