A0599
Title: The drivers of emission reductions in the European carbon market
Authors: Jamie Cross - Melbourne Business School (Australia) [presenting]
Hilde Bjornland - BI Norwegian Business School (Norway)
Felix Kapfhammer - BI Norwegian Business School (Norway)
Abstract: The purpose is to study the drivers of emission reductions in the carbon market of the European Union Emission Trading System (EU ETS) since its inception in 2005. A novel empirical framework is introduced that facilitates the joint identification of simultaneous demand and supply shocks underlying the European carbon market. It is found that emission supply restrictions of the EU ETS were the dominant driver of emissions reductions, reducing emissions by 46\%. However, it is also found that two opposing emission demand factors also played an important role. Demand from industrial economic activity increased emissions by 15\%, while other demand-side factors, primarily reflecting the transition to low-carbon economies, reduced emissions by 21\%.
