Why Does Emissions Trading Under the EU Ets Not Affect Firms' Competitiveness? Empirical Findings from the Literature

26 Pages Posted: 8 Jan 2018

See all articles by Eugénie Joltreau

Eugénie Joltreau

Université Paris Dauphine

Katrin Sommerfeld

Centre for European Economic Research (ZEW), Department Labour Markets, Human Resources and Social Policy; IZA Institute of Labor Economics

Abstract

Environmental policies may have important consequences for firms' competitiveness or profit-ability. However, the empirical literature shows that hardly any statistically significant effects on firms can be detected for the European Union Emissions Trading Scheme (EU ETS). We explain why there are arguably no significant competitiveness effects on firms, at least not during the first two phases of the scheme (2005-2012). We also reason why the third phase (2013-2020) is likely to reveal similar results. We show that the main explanations for this finding are a large over-allocation of emissions allowances leading to a price drop and the ability of firms to pass costs onto consumers in some sectors. Cost pass-through combined with free allocation, in turn, partly generated windfall profits. In addition, the relatively low importance of energy costs indicated by their average share in the budgets of most manufacturing industries may limit the impact of the EU ETS. Finally, small but significant stimulating effects on innovation have been found so far.

Keywords: employment effects, firm-level competitiveness, environmental policies, EU ETS

JEL Classification: Q52, Q58, D22

Suggested Citation

Joltreau, Eugénie and Sommerfeld, Katrin, Why Does Emissions Trading Under the EU Ets Not Affect Firms' Competitiveness? Empirical Findings from the Literature. IZA Discussion Paper No. 11253, Available at SSRN: https://ssrn.com/abstract=3097371 or http://dx.doi.org/10.2139/ssrn.3097371

Eugénie Joltreau (Contact Author)

Université Paris Dauphine ( email )

Place du Maréchal de Tassigny
Paris, Cedex 16 75775
France

Katrin Sommerfeld

Centre for European Economic Research (ZEW), Department Labour Markets, Human Resources and Social Policy ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim
Germany

HOME PAGE: http://www.zew.de/en/mitarbeiter/mitarbeiter.php3?action=mita&kurz=kso

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

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