Working Paper: CEPR ID: DP16982
Authors: Mirabelle Muls; Ralf Martin; Jonathan Colmer; Ulrich Wagner
Abstract: In theory, market-based regulatory instruments correct market failures at least cost. However, evidence on their efficacy remains scarce. Using administrative data, we estimate that the EU ETS – the world’s first and largest market-based climate policy – induced regulated firms to reduce carbon dioxide emissions by 8-12% compared to unregulated firms, a necessary condition for climate change mitigation. We find no evidence of outsourcing to unregulated firms or markets; instead firms made targeted investments, reducing the emissions intensity of production. These findings suggest that the EU ETS induced global emissions reductions, a necessary and sufficient condition formitigating climate change.
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Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| EU ETS (Q58) | CO2 emissions reduction (Q54) |
| EU ETS (Q58) | emissions intensity of production reduction (D20) |
| EU ETS (Q58) | annual CO2 emissions reduction (Q54) |
| EU ETS (Q58) | emissions intensity of value added reduction (Q52) |
| EU ETS (Q58) | economic performance (value added) (D46) |
| EU ETS (Q58) | economic performance (employment) (E24) |