BONN, Germany & MANNHEIM, Germany, June 04, 2024–(BUSINESS WIRE)–In France, pricing carbon dioxide has proved to be an effective tool for reducing producers’ emissions: According to a new study, the manufacturing sector cut this harmful greenhouse gas by an estimated 15 percent during the first eight years of the EU Emissions Trading System (2005-2012, estimated 5.4 m tonnes per year). In total, this exceeds the CO2 emissions that Sweden emits in one year (38 m tonnes). Output was unaffected by the costs of complying with this policy. These results are obtained in a study by the EPoS Economic Research Center at the Universities of Bonn and Mannheim, forthcoming in the Review of Economic Studies under the title “Does Pricing Carbon Mitigate Climate Change? Firm-Level Evidence from the European Union Emissions Trading Scheme”.
“The introduction of the Emissions Trading System (ETS) has produced some notable results in French manufacturing industries,” says Ulrich Wagner from the EPoS Economic Research Center. “Importantly, the reductions in CO2 emissions did not come at the expense of either weaker performance or outsourcing to bypass European climate regulation.”
Cleaner technologies lowered energy bills
The researchers find that French companies invested in energy-saving production technologies. This lowered energy bills and helped them to offset compliance costs such as buying emissions permits or undertaking costly emissions abatement.
The ETS operates as a “cap and trade” system. A cap is set on the total amount of certain greenhouse gases that can be emitted. Companies receive or buy emission allowances which they can trade with one another.
The ETS as the driver of technological change
“We present causal evidence that shows environmental effectiveness of a cap-and-trade system in the industrial sector,” says Wagner. “Despite widespread concerns about the economic costs of climate protection measures, the ETS did not come at the price of output reductions across the board. Instead, many companies invested in new technology which lowered energy consumption and the carbon intensity of production. Therefore, pricing emissions is apparently a good way to make companies aware of potential cost savings and efficiency gains through green technologies.”
The study is forthcoming in the peer-reviewed international journal Review of Economic Studies. Online access to the full study is through this link: http://www.restud.com/does-pricing-carbon-mitigate-climate-change-firm-level-evidence-from-the-european-union-emissions-trading-system/
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