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

Laing, Timothy, Sato, Misato, Grubb, Michael and Comberti, Claudia (2014) The effects and side-effects of the EU emissions trading scheme. Wiley Interdisciplinary Reviews: Climate Change, 5 (4). pp. 509-519. ISSN 1757-7780

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Identification Number: 10.1002/wcc.283

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.

Item Type: Article
Official URL: http://onlinelibrary.wiley.com/
Additional Information: © 2014 John Wiley & Sons, Ltd.
Divisions: Grantham Research Institute
Subjects: G Geography. Anthropology. Recreation > GE Environmental Sciences
JEL classification: D - Microeconomics > D2 - Production and Organizations > D24 - Production; Cost; Capital and Total Factor Productivity; Capacity
H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H23 - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q5 - Environmental Economics > Q54 - Climate; Natural Disasters
Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q5 - Environmental Economics > Q58 - Government Policy
Sets: Research centres and groups > Grantham Research Institute on Climate Change and the Environment
Date Deposited: 19 May 2014 12:58
Last Modified: 20 Sep 2019 01:51
Projects: 308481 (ENTRACTE)
Funders: Economic and Social Research Council, Centre for Climate Change Economics and Policy, Japanese Environment Ministry and Climate Strategies, European Community's Seventh Framework Programme
URI: http://eprints.lse.ac.uk/id/eprint/56790

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