The joint impact of the European Union emissions trading system on carbon emissions and economic performance

Abstract

This paper investigates the impact of the European Union Emissions Trading System (EU ETS) on carbon emissions and economic performance based on a matching methodology exploiting installation-level inclusion criteria combined with difference-in-differences. Installation-level data from national Polluting Emissions Registries in France, Netherlands, Norway and the United Kingdom point to a reduction in carbon emissions in the order of −10% between 2005 and 2012, in line with existing micro and macro evidence. Meanwhile, firm-level data on the 31 ETS-regulated countries shows that the EU ETS had no significant impact on profits and employment, and led to an increase in regulated firms' revenues and fixed assets. We explore various explanations for these findings.