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The Effects of Carbon Trading: Evidence from California’s ETS

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  • Kramer, Niklas
  • Lessmann, Christian

Abstract

We study the impact of California’s emission trading scheme on carbon emissions and economic outcomes. We use panel data for all US states and apply the synthetic control method to construct an optimal counterfactual for CO2 emissions, GDP, employment, and industry turnover as outcome variables. We find evidence for a modest decline in emissions and a net positive aggregate economic effect. While we estimate overall emissions to fall relative to the counterfactual by 0.9% annually and by 6.3% in total between 2013 and 2019, the effect is most evident in the electricity and buildings sector, accounting for an annual abatement of 6.2% and 1.4%, respectively. Our estimates suggest that California’s carbon trading scheme has so far not caused large reductions in overall CO2 emissions and has positively affected macroeconomic outcomes in the short run.

Suggested Citation

  • Kramer, Niklas & Lessmann, Christian, 2023. "The Effects of Carbon Trading: Evidence from California’s ETS," MPRA Paper 116796, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:116796
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    More about this item

    Keywords

    Carbon pricing; emission trading; cap and trade; economic effects; emission reduction; synthetic control;
    All these keywords.

    JEL classification:

    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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