Study Of German Manufacturing Firms: Causal Impact Of European Union Emission Trading Scheme On Firm Behaviour And Economic Performance

TL;DR

This study examines how the European Union Emission Trading Scheme (EU ETS) influenced German manufacturing firms' behavior and economic outcomes, revealing a significant initial positive impact that was not sustained over time.

Contribution

It provides empirical evidence on the causal effects of EU ETS on firm performance, highlighting sector-specific impacts and temporal dynamics.

Findings

EU ETS had a significant positive effect during Phase I

The impact was strongest in the paper industry

Effect diminished after the first year

Abstract

The results based on the nonparametric nearest neighbor matching suggest a statistically significant positive effect of the EU ETS on the economic performance of the regulated firms during Phase I of the EU ETS. A year-by-year analysis shows that the effect was only significant during the first year of Phase I. The EU ETS, therefore, had a particularly strong effect when it was introduced. It is important to note that the EU ETS does not homogeneously affect firms in the manufacturing sector. We found a significant positive impact of EU ETS on the economic performance of regulated firms in the paper industry.