Assessing the Economic Impacts of Environmental Policies

Evidence from a Decade of OECD Research

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Over the past decades, governments have gradually adopted more rigorous environmental policies to tackle challenges associated with pressing environmental issues, such as climate change. The ambition of these policies is, however, often tempered by their perceived negative effects on the economy. The empirical evidence in this volume – covering a decade of OECD analysis – shows that environmental policies have had relatively small effects on economic outcomes such as employment, investment, trade and productivity. At the same time, they have been effective at reducing emissions from industry. The policies can however generate winners and losers across firms, industries and regions: while the least productive firms from high-polluting sectors are adversely affected, more productive firms and low-pollution sectors benefit. Environmental policies can be designed and combined with other policies to compensate workers and industries that may lose and to emphasise their positive impacts.


The European Union Emissions Trading System and its economic and environmental impacts

The European Union Emissions Trading System (EU ETS) is currently the largest emissions trading system globally in terms of greenhouse gases covered. With an increasing number of emissions trading systems being implemented around the world, it is important to understand the environmental and economic impacts such a system might have. This chapter provides a causal analysis of the impact of the introduction of the EU ETS on regulated companies. To evaluate the impact on carbon emissions, installation-level data on CO2 emissions is used for four European countries, while the analysis focuses on the economic impacts on firms’ revenues, assets, profits and employment, it uses firm-level data for 31 European countries. The empirical analysis uses a matching methodology combined with a difference-in-differences estimation to provide a causal estimate of the policy’s impact. The analysis finds that the introduction of the EU ETS led to a reduction of carbon emissions by 10% between 2005 and 2012. The impact on economic outcomes is either insignificant or positive, suggesting that the potential fears in terms of competitiveness loss of the European industry have been exaggerated.


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