Technological Change and the EU ETS: The Case of Ireland

Abstract

The rate of greenhouse gas reducing technological change and occurrence of environmentally friendly innovation are integral in reducing emissions levels. The European Union commenced the pilot phase of the European Union Emissions Trading System(EU ETS) in 2005 with the intent to enhance the adoption of existing low-carbon technologies and the development and of new ones by putting a price on CO2 emissions. We survey Irish EU ETS firms to study the occurrence of CO2 emissions friendly technological change during the pilot phase (2005-2007) as well as the reasons firms did or did not alter their technology portfolios in response to the price on emissions. Despite declining emissions prices and policy related uncertainty, 48% of responding Irish firms employed new machinery or equipment, 74% made process or behavioral changes, and 41% switched fuels to some degree that contributed to emissions reductions during the pilot phase. The effect of rising energy prices on these emissions and energy saving actions should not be overlooked. In general, we find that the EU ETS was effective in stimulating moderate technological change and also raising awareness about emissions reduction possibilities.

Keywords: European Union Emissions Trading System, Climate Policy, Innovation, Technological

JEL Classification: Q550, Q540, Q580, Q480