Report on the empirical evaluation of the impact of the EU ETS


The ENTRACTE research project is aiming to analyse the European climate policy portfolio with special emphasis on the role of interactions between its different parts. The project’s ultimate goal is to provide pragmatic guidance to policy makers for designing effective, cost efficient and politically and legally feasible climate policy portfolios.

How have firms responded to the European Union Emissions Trading System (EU ETS), the EU’s flagship climate policy? Using comprehensive firm-level data on 8,000 companies regulated across Europe as well as plant-level data for around 9,500 French manufacturing firms, this report explores the impact of the EU ETS on carbon emissions and economic outcomes such as revenues and employment. Using up-to-date econometric techniques, we find no evidence at the European level that the EU ETS has had any impact on the turnover or the employment level or firms regulated under the system, compared to a counterfactual scenario. Moreover, the analysis of French installations, for which carbon emissions are observed, shows that regulated plants reduced emissions by an average of 15.7%. The most marketed reduction in emissions is observed during Phase II (2008-2012). About half of the reduction in emissions can be accounted for by an increase in the share of gas, which is less carbon intensive than coal and oil. Little evidence is found that firms reallocated production and emissions between regulated and unregulated plants. Overall, the results suggest that the EU ETS has reduced carbon emissions of regulated plants without jeopardizing the competitiveness of companies which participate in the carbon market.

Author: Antoine Dechezleprêtre