Does Pricing Carbon Mitigate Climate Change? Firm-Level Evidence from the European Union Emissions Trading Scheme

68 Pages Posted: 4 Feb 2022

See all articles by Jonathan Colmer

Jonathan Colmer

University of Virginia

Ralf Martin

Imperial College London

Mirabelle Muûls

Imperial College Business School and Grantham Institute - Climate Change and the environment; London School of Economics - Centre for Economic Performance

Ulrich J. Wagner

University of Mannheim - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: January 1, 2022

Abstract

In theory, market-based regulatory instruments correct market failures at least cost. However, evidence on their efficacy remains scarce. Using administrative data, we estimate that the EU ETS – the world’s first and largest market-based climate policy – induced regulated firms to reduce carbon dioxide emissions by 8-12% compared to unregulated firms, a necessary condition for climate change mitigation. We find no evidence of outsourcing to unregulated firms or markets; instead firms made targeted investments, reducing the emissions intensity of production. These findings suggest that the EU ETS induced global emissions reductions, a necessary and sufficient condition for mitigating climate change.

Suggested Citation

Colmer, Jonathan and Martin, Ralf and Muûls, Mirabelle and Wagner, Ulrich J., Does Pricing Carbon Mitigate Climate Change? Firm-Level Evidence from the European Union Emissions Trading Scheme (January 1, 2022). CEPR Discussion Paper No. DP16982, Available at SSRN: https://ssrn.com/abstract=4026889

Jonathan Colmer (Contact Author)

University of Virginia ( email )

1400 University Ave
Charlottesville, VA 22903
United States

Ralf Martin

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

Mirabelle Muûls

Imperial College Business School and Grantham Institute - Climate Change and the environment ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

London School of Economics - Centre for Economic Performance ( email )

Houghton Street
London WC2A 2AE
United Kingdom

Ulrich J. Wagner

University of Mannheim - Department of Economics ( email )

D-68131 Mannheim
Germany

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