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EU ETS phase IV and Industrial performance

Author

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  • Boungou, Whelsy
  • Dufau, Bastien

Abstract

This article studies the reaction of sectors regulated by the European Emissions Trading Scheme (EU ETS) to the announcement of Phase IV. Using a Difference-in-Differences approach and data from 347 sectors located within the OECD over the period 1995–2019, we show that regulated sectors reacted immediately after the announcement by gradually increasing their R&D spending. Furthermore, these increases in investment boosted the competitiveness of firms in the regulated sectors through higher output, despite a reduction in total employment. Consequently, our results show that the EU ETS leads to a progressive substitution of labor by more productive capital. Overall, we provide evidence on firms' responses to Phase IV of the EU ETS.

Suggested Citation

  • Boungou, Whelsy & Dufau, Bastien, 2024. "EU ETS phase IV and Industrial performance," Economics Letters, Elsevier, vol. 236(C).
    • Handle: RePEc:eee:ecolet:v:236:y:2024:i:c:s016517652400079x
    DOI: 10.1016/j.econlet.2024.111596
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    More about this item

    Keywords

    EU ETS; Competitiveness; Firm performance; Difference-in-Differences;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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