Does Pricing Carbon Mitigate Climate Change? Firm-Level Evidence from the European Union Emissions Trading System
University of Virginia · International Finance Corporation · +4 more institutions
Abstract
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, on average, the European Union Emissions Trading System (EU ETS)—the world’s first and largest market-based climate policy—induced regulated manufacturing firms to reduce carbon dioxide emissions by 14–16% with no detectable contractions in economic activity. We find no evidence of outsourcing to unregulated firms or markets; instead, firms made targeted investments, reducing the emissions intensity of production. These results indicate that the EU ETS induced global emissions reductions, a necessary and sufficient…
Citation impact
- FWCI
- 156.76
- Percentile
- 100%
- References
- 64
Authors
4Topics & keywords
- Emissions trading
- Climate change
- Natural resource economics
- European union
- Greenhouse gas
- Business
- Carbon offset
- Carbon fibers
- Climate action