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The Effect of EU ETS on Firm Productivity and Innovation-related Activity

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  • Maczulskij, Terhi

Abstract

This study examines the impact of the EU Emission Trading System on firms’ productivity and innovation behavior in the Finnish energy-intensive sector. Using unique administrative data on emissions and firm characteristics from 2000 onwards, the effect of the ETS is analyzed using staggered difference-in-difference design. The results show that while firms do not increase productivity or innovation inputs, those regulated are significantly more likely to introduce both process and product innovations. Additional findings suggest that the ETS effectively reduced energy intensity. Together the findings suggest that carbon pricing may stimulate technological adaptation and environmental improvements without generating measurable losses in productivity.

Suggested Citation

  • Maczulskij, Terhi, 2026. "The Effect of EU ETS on Firm Productivity and Innovation-related Activity," ETLA Working Papers 139, The Research Institute of the Finnish Economy.
    • Handle: RePEc:rif:wpaper:139
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    Keywords

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    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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