The European Union Emissions Trading System reduced CO 2 emissions despite low prices

International carbon markets are an appealing and increasingly popular tool to regulate carbon emissions. By putting a price on carbon, carbon markets reshape incentives faced by firms and reduce the value of emissions. How effective are carbon markets? Observers have tended to infer their effectiveness from market prices. The general belief is that a carbon market needs a high price in order to reduce emissions. As a result, many observers remain skeptical of initiatives such as the European Union Emissions Trading System (EU ETS), whose price remained low (compared to the social cost of carbon). In this paper, we assess whether the EU ETS reduced [Formula: see text] emissions despite low prices. We motivate…

• UO
  University of Pittsburgh
• BA
  British Academy

  Award: SG171349