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

Timothy Laing, Misato Sato, Michael Grubb, Claudia Comberti

Research output: Contribution to journalArticle

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.
Original languageEnglish
Pages (from-to)509-519
Number of pages11
JournalWiley Interdisciplinary Reviews: Climate Change
Volume5
Issue number4
DOIs
Publication statusPublished - 15 Apr 2014

Fingerprint

Emissions trading scheme
Side effects
CO2 emissions
Emissions trading
Profit
Carbon
City-regions
Investment decision
Cost pass-through
Pricing policy
European Union
Factors
Industrial sector
Windfall
Price impact
Pricing decisions
Large companies
Financial crisis
Abatement
Market power

Bibliographical note

This is the peer reviewed version of the following article: Laing, T., Sato, M., Grubb, M. and Comberti, C. (2014), The effects and side-effects of the EU emissions trading scheme. WIREs Clim Change, 5: 509–519., which has been published in final form at http://onlinelibrary.wiley.com/wol1/doi/10.1002/wcc.283/abstract. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.

Keywords

  • Emissions Trading
  • EU ETS

Cite this

Laing, Timothy ; Sato, Misato ; Grubb, Michael ; Comberti, Claudia. / The effects and side-effects of the EU emissions trading scheme. In: Wiley Interdisciplinary Reviews: Climate Change. 2014 ; Vol. 5, No. 4. pp. 509-519.
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The effects and side-effects of the EU emissions trading scheme. / Laing, Timothy; Sato, Misato; Grubb, Michael; Comberti, Claudia.

In: Wiley Interdisciplinary Reviews: Climate Change, Vol. 5, No. 4, 15.04.2014, p. 509-519.

Research output: Contribution to journalArticle

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