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Indirect cost compensation under the EU ETS: A firm-level analysis

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  • Ferrara, Antonella Rita
  • Giua, Ludovica

Abstract

Decarbonisation implies conversion to electrification with a subsequent increase in electricity consumption. The EU Emission Trading System (EU ETS) compensates firms for the higher electricity costs. We exploit sectoral and country differences in regulation and a unique dataset on beneficiaries to evaluate the impact of EU ETS indirect cost compensation on the performance of aided firms. Receiving compensation for indirect costs does not have a statistically significant impact on labour productivity. Conversely, there is evidence of a negative performance in terms of turnover, value of total assets and employment of beneficiaries. Results suggest that the amounts transferred to firms might not fully compensate for the higher cost of energy in aided countries. However, the negative effects fade in sectors more exposed to carbon leakage risk. As far as aid intensity is concerned, estimates imply that higher compensation amounts improve performance.

Suggested Citation

  • Ferrara, Antonella Rita & Giua, Ludovica, 2022. "Indirect cost compensation under the EU ETS: A firm-level analysis," Energy Policy, Elsevier, vol. 165(C).
    • Handle: RePEc:eee:enepol:v:165:y:2022:i:c:s0301421522002142
    DOI: 10.1016/j.enpol.2022.112989
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    Cited by:

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    2. Basaglia, Piero & Isaksen, Elisabeth & Sato, Misato, 2024. "Carbon pricing, compensation and competitiveness: lessons from UK manufacturing," LSE Research Online Documents on Economics 122364, London School of Economics and Political Science, LSE Library.
    3. Yin, Chuanzhong & Zhang, Zi-Ang & Fu, Xiaowen & Ge, Ying-En, 2024. "A low-carbon transportation network: Collaborative effects of a rail freight subsidy and carbon trading mechanism," Transportation Research Part A: Policy and Practice, Elsevier, vol. 184(C).
    4. Sheng Xu & Wenran Pan & Demei Wen, 2023. "Do Carbon Emission Trading Schemes Promote the Green Transition of Enterprises? Evidence from China," Sustainability, MDPI, vol. 15(8), pages 1-28, April.
    5. Christoph Böhringer & Knut Einar Rosendah & Halvor Briseid Storrøsten, "undated". "Measures against carbon leakage. Combining output-based allocation with consumption taxes," Discussion Papers 1013, Statistics Norway, Research Department.
    6. Jia, Zhijie, 2023. "The hidden benefit: Emission trading scheme and business performance of downstream enterprises," Energy Economics, Elsevier, vol. 117(C).

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