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The effects and side-effects of the EU emissions trading scheme

Author

Listed:
  • Laing, Timothy
  • Sato, Misato
  • Grubb, Michael
  • Comberti, Claudia

Abstract

As many countries, regions, cities, and states implement emissions trading policies to limit CO2 emissions, they turn to the European Union's experience with its emissions trading scheme since 2005. As a prominent example of a regional carbon pricing policy, it has attracted significant attention from scholars interested in evaluating the effectiveness and impacts of emissions trading. Among the key difficulties faced by researchers is isolating the effect of the EU ETS on industry operation, investment, and pricing decisions from other dominant factors such as the financial crisis, and establishing credible counterfactual scenarios against this backdrop. This article reviews the evidence, focusing on two intended effects (emissions abatement and investment in low-carbon technologies) as well as two side-effects (profits and price impacts). We find that the EU ETS cut CO2 emissions by 40–80 million t/year on average, or 2–4% of the total capped, while the evidence on innovation and investment impacts is inconclusive. There is strong empirical support for cost-pass through in electricity (20–100%), in diesel and gasoline (>50%), and some preliminary evidence of pricing power in other industrial sectors. Windfall profits have amounted to billions of Euros, and concentrated in a few large companies.

Suggested Citation

  • Laing, Timothy & Sato, Misato & Grubb, Michael & Comberti, Claudia, 2014. "The effects and side-effects of the EU emissions trading scheme," LSE Research Online Documents on Economics 56790, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:56790
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    File URL: http://eprints.lse.ac.uk/56790/
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    Citations

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    Cited by:

    1. Frédéric Branger & Jean-Pierre Ponssard & Oliver Sartor & Misato Sato, 2015. "EU ETS, Free Allocations, and Activity Level Thresholds: The Devil Lies in the Details," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 2(3), pages 401-437.
    2. Xavier Timbeau & Pawel Wiejski, 2017. "EU ETS-broken beyond repair ? An analysis based on FASTER principles," Sciences Po publications 24, Sciences Po.
    3. Niall Farrell & Seán Lyons, 2016. "Equity impacts of energy and climate policy: who is shouldering the burden?," Wiley Interdisciplinary Reviews: Energy and Environment, Wiley Blackwell, vol. 5(5), pages 492-509, September.
    4. repec:spr:annopr:v:255:y:2017:i:1:d:10.1007_s10479-016-2200-x is not listed on IDEAS
    5. Andrew David Allan Smith, 2016. "The Use and Abuse of Environmental Knowledge: A Bloomington School Interpretation of the Canadian Fisheries Act of 1868," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 29(2), pages 139-161, June.
    6. repec:spr:nathaz:v:92:y:2018:i:2:d:10.1007_s11069-018-3223-1 is not listed on IDEAS
    7. Frédéric Branger & Oskar Lecuyer & Philippe Quirion, 2015. "The European Union Emissions Trading Scheme: should we throw the flagship out with the bathwater?," Post-Print hal-01137875, HAL.
    8. Flores, José Luis, 2014. "Políticas climáticas en países desarrollados: impacto en América Latina," Documentos de Proyectos 646, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).

    More about this item

    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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