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Did the EU ETS Make a Difference? An Empirical Assessment Using Lithuanian Firm-Level Data

We use a panel dataset of about 5,000 Lithuanian firms between 2003 and 2010, to assess the impact of the EU ETS on the environmental and economic performance of participating firms. Using a matching methodology, we are able to estimate the causal impact of EU ETS participation on CO2 emissions, CO2 intensity, investment behaviour and profitability of participating firms. Our results show that ETS participation did not lead to a reduction in CO2 emissions, while we identify a slight improvement in CO2 intensity. ETS participants are shown to have retired part of their less efficient capital stock, and to have made modest additional investments from 2010. We also show that the EU ETS did not represent a drag on the profitability of participating firms.

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Energy Specializations: Energy Modeling – Energy Data, Modeling, and Policy Analysis; Energy and the Environment – Policy and Regulation; Energy and the Economy; Energy and the Environment – Environmental Market Design; Energy and the Environment – Climate Change and Greenhouse Gases

JEL Codes:
E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination
E60 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General
Q43 - Energy and the Macroeconomy
Q56 - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
Q54 - Climate; Natural Disasters and Their Management; Global Warming

Keywords: Cap and trade, CO2 emissions, EU emissions trading system, Ex-post evaluation, Firm competitiveness, Investment, Matching, Panel data, Profits

DOI: 10.5547/01956574.37.2.jjar

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Published in Volume 37, Number 1 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.