A Firm-level evaluation of the European Union Emissions Trading System

The project will provide the first ex-post quantitative assessment of the effects of the EU Emissions Trading System on the energy efficiency and performance of individual businesses. Using longitudinal data on energy use, output and employment in a large sample of business establishments in the United Kingdom and France, we shall study how the introduction of the EU ETS in January 2005 has affected business energy use, in particular whether the EU ETS has resulted in additional energy savings. We will also estimate the impact that the policy has had on participating firms' performance and their competitiveness.In order to do so, we plan to gather comprehensive data from various sources, i.e. EUETS installations data, financial databases and official government microdata on plants and firms. While financial data is relatively easily accessible from a number of sources, data on energy consumption - a major driver of GHG emissions - is typically only available in official microdata sets. As this data comes mostly with severe access restrictions (e.g. in the UK data work can only be carried out on sites of the Office of National Statistics) collecting and analysing this information for all companies covered by the EUETS is a formidable task. For the sake of feasibility of our project, we will focus on two major European countries: France and the UK. With its focus on the short-run effects of the trading scheme and on two countries, this project is the first of a larger research agenda that will lead us to study other European countries as well as the longer-term implications of a carbon market on firms' behaviour and performance.

The research output will not only be relevant to other academics. It will also be relevant to the following non-academic bodies: 1) Government agencies in the UK and France involved in the negotiation of the EUETS future phases design and in its implementation (in the UK: Department for Energy and Climate Change, Department for Business Innovation and Skills, DEFRA, Treasury) as it will provide them with new evidence on the effectiveness of the EUETS and its impact on competitiveness and performance, thus improving decision-making .2) For similar reasons, the European Commission's DG for Climate Action in charge of the design and administration of the EUETS, the DG Enterprise and Industry as well as members of the European Parliament. Given that climate policies are going to be needed in the future, the timescale of the project will allow its results to impact policy-making. 3) Firms taking part in the EUETS and their trade associations.4) Consulting firms involved in helping firms on the market as well as financial institutions taking part in the EUETS5) Policymakers outside the EU planning to implement carbon markets. Various countries, including Australia and the US, are currently in the process of designing climate change policy with emissions trading as a key feature. By assessing the impact of the European carbon market on energy efficiency and competitiveness, this research may have a strong influence on the political acceptability of future carbon markets.6) The public at large as it is the beneficiary of emissions reductions, of the revenue of potential EUETS permits auctioning but also bears part of the carbon price burden in the form of higher commodity prices.