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Catching up and falling behind: Cross-country evidence on the impact of the EU ETS on firm productivity

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  • Koch, Nicolas
  • Themann, Michael

Abstract

This paper identifies the impact of the European Union Emissions Trading System (EU ETS) on firm productivity. We estimate a stylized version of the neo-Schumpeterian productivity model to differentiate dynamic forces of productivity convergence from the policy effect of the EU ETS depending on the level of firms’ technological advancement. The identification is based on a difference-in-differences approach exploiting the incomplete participation requirements of the EU ETS and the rich panel structure of a representative dataset for firm-level total factor productivity (TFP) in eight EU countries from 2002 to 2012. We show that the policy effect on TFP is nonlinear in the distance to the technological frontier within the industry. The EU ETS spurs productivity among firms close to the frontier but slows down catch-up growth among laggard firms.

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  • Koch, Nicolas & Themann, Michael, 2022. "Catching up and falling behind: Cross-country evidence on the impact of the EU ETS on firm productivity," Resource and Energy Economics, Elsevier, vol. 69(C).
    • Handle: RePEc:eee:resene:v:69:y:2022:i:c:s092876552200032x
    DOI: 10.1016/j.reseneeco.2022.101315
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    More about this item

    Keywords

    Climate policy; EU ETS; Productivity; Technological catch-up;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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