The Co-Benefits Of Climate Policy: Evidence From The Eu Emissions Trading Scheme

Carbon dioxide (CO2) emissions are known to cause global climate change but no damage to the local environment. However, because CO2 is often jointly produced with other substances that pollute the environment, CO2 abatement may generate ancillary benefits, especially for human health. Previous research suggests that these co-benefits can offset a substantial share of the economic costs of mitigation policies. This paper conducts the first empirical test of this hypothesis in the context of the European Emissions Trading Scheme (EU ETS) for CO2. The econometric analysis exploits comprehensive microdata on discharges of more than 90 different pollutants into air, water and soil, at more than 28,000 commercial installations in 31 European countries. It is found that the EU ETS decreased air releases of some pollutants while increasing water releases of other pollutants. Moreover, in some cases the patterns of spatial redistribution are strongly correlated with income, population size or age. The implications for the efficiency and environmental justice of the EU ETS are discussed.