Carbon Emissions and Economic Performance: Assessing the Impact of the EU ETS

Sammanfattning

This thesis examines the effects of the European Union Emissions Trading System (EU ETS)phase 3 on carbon emissions and economic performance across 25 European countries between 2008-2020. The empirical strategy exploits the tightening of the EU ETS in phase 3,characterized by a substantial reduction in free allowance allocations, and applies a difference- in-difference event study design. The analysis is conducted for a broad European sample and for four regional subsamples within Europe. Although EU ETS was implemented across most of the European Countries, we identify the causal effect of the reform by leveraging treatment intensity across industry divisions. Descriptive evidence shows a pronounced decline in total CO2 emissions across Europe, with particularly reductions in energy-intensive divisions. Between 2008 and 2020, emissions decreased by approximately 41%. Event-study estimates indicate no significant pre-treatment differences in trends, supporting the parallel trends assumption. While post-treatment point estimates suggest a downward tendency in emissions, these effects are in majority not statistically significant. In addition to emissions, we examine the impact of the EU ETS on economic performance, including turnover, production value, employment, and gross operating surplus. The results indicate no statistically significant negative effects on economic performance. For both emissions and economic performance, regional subsamples yield patterns consistent with the results of the sample including all countries. Overall, the findings suggest that the EU ETS has contributed to emissions reductions without adversely affecting economic performance.