The effect of the EU ETS on emissions of Swedish industries

Summary

Industries globally produced 50% of total emissions in 2018, largely contributing to the current climate changes. The efficiency of environmental policies is crucial for reaching the necessary abatement goals. The EU ETS policy covers the most emission-intensive industries, whereas it is imperative to repeatedly evaluate the policy efficiency. There is yet no consensus whether the price of EU ETS CO₂ allowances influences the emissions. Using a panel data regression analysis, this thesis examined the effect of the EU ETS on emissions of various Swedish industries. The empirical model consisted of emissions as a dependent variable, and the price of allowances and the output of production as independent variables. Moreover, an independent categorial variable for classification of sectors was included, along with an independent categorial variable for years. Overall, the results showed all independent variables to be statistically significant. The model estimated that a 1% increase in price brings 12,73% decrease in emissions, and a 1% increase in production brings a 0,0026% increase in emissions. The graphical analysis showed that all sectors except Iron & Steel has decreased their emissions and become more energy-efficient due to the EU ETS. From these results, the study concludes that the allowance price of EU ETS is affecting the emissions of Swedish industries. It also concludes that the efficiency of the policy varies among the different sectors, thus sector-specific adjustments of the policy may be relevant to optimize the overall efficiency of the policy.