The Drivers of Emission Reductions in the European Carbon Market

Hilde Bjørnland (), Jamie L. Cross () and Felix Kapfhammer ()
Authors registered in the RePEc Author Service: Marco Lorusso and Stylianos Asimakopoulos

No No 08/2023, Working Papers from Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School

Abstract: This paper studies the drivers of emission reductions in the carbon market of the European Union Emission Trading System (EU ETS) since its inception in 2005. We introduce a novel empirical framework that facilitates the joint identification of simultaneous demand and supply shocks underlying the European carbon market. We find that emission supply restrictions of the EU ETS were the dominant driver of emissions reductions, reducing emissions by 46%. However we also find that two opposing emission demand factors also played an important role. Demand from industrial economic activity increased emissions by 15%, while other demand-side factors, primarily reflecting the transition to low-carbon economies, reduced emissions by 21%.

Pages: 42 pages
Date: 2023-09
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge, nep-fdg, nep-ger, nep-mon and nep-pay
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https://hdl.handle.net/11250/3090022

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Working Paper: The Drivers of Emission Reductions in the European Carbon Market (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:bny:wpaper:0120

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