The European Union emissions trading system reduced CO2 emissions despite low prices

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Bayer, Patrick and Aklin, Michaël (2020) The European Union emissions trading system reduced CO2 emissions despite low prices. Proceedings of the National Academy of Sciences, 117 (16). pp. 8804-8812. ISSN 1091-6490 (https://doi.org/10.1073/pnas.1918128117)

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Abstract

Significance International carbon markets are an appealing and increasingly popular tool to regulate carbon emissions. They put a price on carbon emissions and make pollution less attractive for regulated firms. However, carbon markets often produce prices which are deemed too low relative to the social cost of carbon. We argue that despite low prices, carbon markets can help reduce emissions. Using a statistical model and sectoral emissions data, we find that the EU ETS, which initially regulated roughly 50% of EU carbon emissions from mainly energy production and large industrial polluters, saved more than 1 billion tons of CO 2 between 2008 and 2016. This translates to reductions of 3.8% of total EU-wide emissions compared to a world without the EU ETS.

ORCID iDs

Bayer, Patrick ORCID logoORCID: https://orcid.org/0000-0003-1731-1270 and Aklin, Michaël;
CORE (COnnecting REpositories)