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The Drivers of Emission Reductions in the European Carbon Market

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  • Hilde C. Bjørnland
  • Jamie L. Cross
  • Felix Kapfhammer

Abstract

This paper studies the drivers of emission reductions in the carbon market of the European Union Emission Trading System (EU ETS) since its inception in 2005. We introduce a novel empirical framework that facilitates the joint identification of simultaneous demand and supply shocks underlying the European carbon market. We find that emission supply restrictions of the EU ETS were the dominant driver of emissions reductions, reducing emissions by 46%. However we also find that two opposing emission demand factors also played an important role. Demand from industrial economic activity increased emissions by 15%, while other demand-side factors, primarily reflecting the transition to low-carbon economies, reduced emissions by 21%.

Suggested Citation

  • Hilde C. Bjørnland & Jamie L. Cross & Felix Kapfhammer, 2023. "The Drivers of Emission Reductions in the European Carbon Market," Working Papers No 08/2023, Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School.
    • Handle: RePEc:bny:wpaper:0119
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    File URL: https://hdl.handle.net/11250/3090022
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    References listed on IDEAS

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    1. Jurate Jaraite-Ka~ukauske and Corrado Di Maria, 2016. "Did the EU ETS Make a Difference? An Empirical Assessment Using Lithuanian Firm-Level Data," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1).
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    3. Petrick, Sebastian & Wagner, Ulrich J., 2014. "The impact of carbon trading on industry: Evidence from German manufacturing firms," Kiel Working Papers 1912, Kiel Institute for the World Economy (IfW Kiel).
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    11. Declercq, Bruno & Delarue, Erik & D'haeseleer, William, 2011. "Impact of the economic recession on the European power sector's CO2 emissions," Energy Policy, Elsevier, vol. 39(3), pages 1677-1686, March.
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    Cited by:

    1. Francesco Ravazzolo & Luca Rossini, 2023. "Is the Price Cap for Gas Useful? Evidence from European Countries," Working Papers 2023.23, Fondazione Eni Enrico Mattei.
    2. Andrea Bastianin & Elisabetta Mirto & Yan Qin & Luca Rossini, 2024. "What drives the European carbon market? Macroeconomic factors and forecasts," Papers 2402.04828, arXiv.org, revised Feb 2024.

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    More about this item

    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • 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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