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Emission trading and overlapping environmental support: installation-level evidence from the EU ETS

Author

Listed:
  • Klaas Mulier
  • Marten Ovaere
  • Leo Stimpfle

Abstract

We collect data on 24,000 state aid cases within the European Union to create granular measures of national environmental support and study their interactions with the European Union Emissions Trading System (EU ETS). Exploiting variation in regulated installations’ exposure to carbon prices and an unexpected regulatory tightening of the EU ETS, we show that high exposed installations strongly reduced emissions relative to less exposed installations in the same industry with significant heterogeneity across countries and industries. In the power sector, emission reductions are significantly stronger in countries with more generous renewable energy support policies. In contrast, emission reductions in the manufacturing sector are significantly weaker in country-industries with more generous cost compensation for energy-intensive activities.

Suggested Citation

  • Klaas Mulier & Marten Ovaere & Leo Stimpfle, 2024. "Emission trading and overlapping environmental support: installation-level evidence from the EU ETS," Working Paper Research 461, National Bank of Belgium.
    • Handle: RePEc:nbb:reswpp:202410-461
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    File URL: https://www.nbb.be/nl/articles/emission-trading-and-overlapping-environmental-support-installation-level-evidence-eu-ets
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    More about this item

    Keywords

    cap-and-trade; climate policy; Overlapping policies; EU ETS;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • L98 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Government Policy
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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