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On the Effectiveness of the EU ETS

Author

Listed:
  • Jaume Freire González
  • Arlet Vila-Bagaria

Abstract

We evaluate the effectiveness of the European Union Emissions Trading System (EU ETS). Using a staggered difference-in-differences design exploiting variation in adoption timing across countries and phases from 1990–2022, our estimates suggest that the EU ETS is associated with substantial reductions in emissions overall—especially among early participants—although effectiveness varied across cohorts and regions. Later entrants (2008, 2013) showed weaker effects, but disaggregated estimates revealed notable regional reductions. Phase III reforms—tighter caps and expanded auctioning—enhanced performance, cutting emissions by 24MtCO2 annually by 2020. Overall, the EU ETS has become more effective as its design matured but remains insufficient to meet EU's emissions 2030 targets.

Suggested Citation

  • Jaume Freire González & Arlet Vila-Bagaria, 2026. "On the Effectiveness of the EU ETS," Working Papers 1581, Barcelona School of Economics.
    • Handle: RePEc:bge:wpaper:1581
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • 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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