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The Impact of Green Policies on Local Economic Performance: Evidence from the EU ETS

Author

Listed:
  • Ireri Hernandez Carballo
  • Gian Maria Mallarino
  • Marco Percoco

Abstract

Environmental policies such as the European Union Emissions Trading System (EU ETS) raise concerns about their impact on local employment and competitiveness. Yet, existing EU ETS studies focus on firm-level outcomes during the initial phases of the program. We construct a panel dataset of about 900 European provinces across 2008 to 2020 to assess the effects of a significant policy change in Phase 3 of the EU ETS. Specifically, we investigate how the changes in the allocation of free allowances affected local economies in terms of employment, gross value added (GVA) and productivity. By assembling a novel dataset and measuring the net change of paid emissions from Phase 2 to Phase 3 we construct a measure of exposure to the policy change at the NUTS-3 level. Using synthetic difference-in-differences, we find that being more exposed to the EU ETS is associated with a statistically significant contraction of employment and GVA in the more carbon-intensive industries. Our results are complemented with evidence on a sizeable reduction in carbon emissions and mild impact in terms of regional disparities in the European Union.

Suggested Citation

  • Ireri Hernandez Carballo & Gian Maria Mallarino & Marco Percoco, 2025. "The Impact of Green Policies on Local Economic Performance: Evidence from the EU ETS," GREEN Working Papers 27, GREEN, Centre for Research on Geography, Resources, Environment, Energy & Networks, Universita' Bocconi, Milano, Italy.
  • Handle: RePEc:bcu:greewp:greenwp27
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    References listed on IDEAS

    as
    1. Stefano F. Verde, 2020. "The Impact Of The Eu Emissions Trading System On Competitiveness And Carbon Leakage: The Econometric Evidence," Journal of Economic Surveys, Wiley Blackwell, vol. 34(2), pages 320-343, April.
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    3. Thomas Douenne & Adrien Fabre, 2022. "Yellow Vests, Pessimistic Beliefs, and Carbon Tax Aversion," American Economic Journal: Economic Policy, American Economic Association, vol. 14(1), pages 81-110, February.
    4. Costantini, Valeria & Mazzanti, Massimiliano, 2012. "On the green and innovative side of trade competitiveness? The impact of environmental policies and innovation on EU exports," Research Policy, Elsevier, vol. 41(1), pages 132-153.
    5. Giovanni Marin & Marianna Marino & Claudia Pellegrin, 2018. "The Impact of the European Emission Trading Scheme on Multiple Measures of Economic Performance," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 71(2), pages 551-582, October.
    6. Colantone, Italo & Di Lonardo, Livio & Margalit, Yotam & Percoco, Marco, 2024. "The Political Consequences of Green Policies: Evidence from Italy," American Political Science Review, Cambridge University Press, vol. 118(1), pages 108-126, February.
    7. repec:dau:papers:123456789/10174 is not listed on IDEAS
    8. Robaina Alves, Margarita & Rodríguez, Miguel & Roseta-Palma, Catarina, 2011. "Sectoral and regional impacts of the European carbon market in Portugal," Energy Policy, Elsevier, vol. 39(5), pages 2528-2541, May.
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    Full references (including those not matched with items on IDEAS)

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    Keywords

    EU ETS; Carbon policies; CO2 Emissions; Regional Economics; Economic Geography;
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