EU ETS phase IV and Industrial performance

Whelsy Boungou and Bastien Dufau

Economics Letters, 2024, vol. 236, issue C

Abstract: This article studies the reaction of sectors regulated by the European Emissions Trading Scheme (EU ETS) to the announcement of Phase IV. Using a Difference-in-Differences approach and data from 347 sectors located within the OECD over the period 1995–2019, we show that regulated sectors reacted immediately after the announcement by gradually increasing their R&D spending. Furthermore, these increases in investment boosted the competitiveness of firms in the regulated sectors through higher output, despite a reduction in total employment. Consequently, our results show that the EU ETS leads to a progressive substitution of labor by more productive capital. Overall, we provide evidence on firms' responses to Phase IV of the EU ETS.

Keywords: EU ETS; Competitiveness; Firm performance; Difference-in-Differences (search for similar items in EconPapers)
JEL-codes: F23 Q52 Q55 Q58 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:236:y:2024:i:c:s016517652400079x

DOI: 10.1016/j.econlet.2024.111596

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