Effects of the EU ETS on manufacturing plants

This project investigates how the EU ETS regulation has affected Norwegian plants. We are particularly interested in whether plants regulated by the ETS have reduced their emissions or emissions intensities because of the regulation. A positive price on emission allowances should give plants incentives to cut back on their emissions, both total emissions and emissions per unit of output. The price of allowances has periodically been rather low, however, moderating these incentives. Moreover, manufacturing industry plants have received most of the allowances they need for free, and the question is if this has also reduced the incentives to abate. Our rich data for Norwegian plants allow us to identify effects on several important aspects of plant behavior, such as emissions, emission intensities and economic performance. We use propensity score matching to identify a comparison group of plants. As the regulator’s decision on which plants should be regulated is based on the plant’s type of emission, the industry affiliation, the capacity limit and the plant size, we match on these variables. The panel data set contains information on emissions, ETS regulation, other types of environmental regulations, number of employees, capital intensity, economic performance, and more. As greenhouse gases are energy use related emissions, these plants are likely to be energy price responsive. Hence, we control for relative energy prices.