Emission abatement: Untangling the impacts of the EU ETS and the economic crisis

- We untangle the effects of the EU ETS from those of the economic crisis on industrial emission abatement.
- The empirical analysis uses verified emission data instead of estimated emission data.
- Abatement of emissions in EU in the last years has been mainly due to the impact of the economic crisis.
- Low level of abatement attributable to the EU ETS suggests that important changes must be made in environmental policy.

In this study we use historical emission data from installations under the European Union Emissions Trading System (EU ETS) to evaluate the impact of this policy on greenhouse gas emissions during the first two trading phases (2005-2012). As such the analysis seeks to disentangle two causes of emission abatement: that attributable to the EU ETS and that attributable to the economic crisis that hit the EU in 2008/09. To do so, we use a dynamic panel data approach. Our results suggest that, by far, the biggest share of abatement was attributable to the effects of the economic crisis. This finding has serious implications for future policy adjustments affecting core elements of the EU ETS, including the distribution of EU emission allowances.