Does Pricing Carbon Mitigate Climate Change? Firm-Level Evidence from the European Union Emissions Trading Scheme

Market-based regulatory instruments hold the promise of correcting market failures at least cost. However, evidence on their efficacy remains scarce. We evaluate the European Union Emissions Trading Scheme (EU ETS) - the world's first and largest market-based climate policy. Using administrative data on almost 4,000 French manufacturing firms, we estimate that the EU ETS induced regulated firms to reduce carbon dioxide emissions by 8-12% compared to unregulated firms after the Pilot phase, a necessary condition for climate change mitigation. These reductions account for 26% of the concurrent decline in aggregate industrial emission in France. We do not estimate any negative effects on the scale of production; instead we find that firms reduced the emissions intensity of value added by making targeted investments. We find no evidence that firms outsourced production to unregulated firms or markets. Collectively, these findings suggest that the EU ETS induced global emissions reductions, a necessary and sufficient condition for mitigating climate change.

• Publication year

  2020

• Venue

  Social Science Research Network

• Publication date

  Unknown publication date

• Fields of study

  Business, Economics, Environmental Science

• Identifiers
  DOI 10.2139/ssrn.3725482
• External record

  Open on Semantic Scholar

• Source metadata

  Semantic Scholar

• No claims are published for this paper.

• No concepts are published for this paper.

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