Dear all,
this is just to make you aware of our recently published PNAS paper on
the effectiveness of EU carbon markets. We find that the EU ETS has
possibly worked better than what is generally believed despite low
prices; it helped reduce CO2 emissions by 3.8% between 2008-2016. Even
if you do not care much about carbon markets as such, we use a
generalized synthetic control approach to estimate the policy's
effectiveness which might be useful if you are interested in public
policy evaluation more broadly.
The paper is available as open access here:
https://www.pnas.org/content/117/16/8804
Abstract: International carbon markets are an appealing and increasingly
popular tool to regulate carbon emissions. By putting a price on carbon,
carbon markets reshape incentives faced by firms and reduce the value of
emissions. How effective are carbon markets? Observers have tended to
infer their effectiveness from market prices. The general belief is that
a carbon market needs a high price in order to reduce emissions. As a
result, many observers remain skeptical of initiatives such as the
European Union Emissions Trading System (EU ETS), whose price remained
low (compared to the social cost of carbon). In this paper, we assess
whether the EU ETS reduced CO2 emissions despite low prices. We motivate
our study by documenting that a carbon market can be effective if it is
a credible institution that can plausibly become more stringent in the
future. In such a case, firms might cut emissions even though market
prices are low. In fact, low prices can be a signal that the demand for
carbon permits weakens. Thus, low prices are compatible with successful
carbon markets. To assess whether the EU ETS reduced carbon emissions
even as permits were cheap, we estimate counterfactual carbon emissions
using an original sectoral emissions dataset. We find that the EU ETS
saved about 1.2 billion tons of CO2 between 2008 and 2016 (3.8%)
relative to a world without carbon markets, or almost half of what EU
governments promised to reduce under their Kyoto Protocol commitments.
Emission reductions in sectors covered under the EU ETS were higher.
All the best,
Patrick
--
Dr Patrick Bayer
Senior Lecturer & Chancellor's Fellow
School of Governmant and Public Policy
University of Strathclyde
McCance, Room #415
Phone: +44(0)141/548-2114
Email: patrick.ba...@strath.ac.uk
Web: www.patrickbayer.com
Twitter: @pol_economist
LinkedIn: www.linkedin.com/in/patbayer
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