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

No 16982, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: In theory, market-based regulatory instruments correct market failures at least cost. However, evidence on their efficacy remains scarce. Using administrative data, we estimate that the EU ETS – the world’s first and largest market-based climate policy – induced regulated firms to reduce carbon dioxide emissions by 8-12% compared to unregulated firms, a necessary condition for climate change mitigation. We find no evidence of outsourcing to unregulated firms or markets; instead firms made targeted investments, reducing the emissions intensity of production. These findings suggest that the EU ETS induced global emissions reductions, a necessary and sufficient condition for mitigating climate change.

Date: 2022-01
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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 (2020)
Working Paper: Does pricing carbon mitigate climate change? Firm-level evidence from the European Union emissions trading scheme (2020)
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