EU Climate Policy: French Manufacturers Cut Emissions By 43 Million Tonnes Press Release: French Manufacturers Cut Emissions By 43 Million Tonnes

“The introduction of the Emissions Trading System has produced some notable results in French manufacturing industries,” says Ulrich Wagner from the EPoS Economic Research Center. “Importantly, the reductions in CO2 emissions did not come at the expense of either weaker performance or outsourcing to bypass European climate regulation.”

Cleaner technologies lowered energy bills

To economists, it is surprising that output was unaffected, as carbon pricing increases manufacturing costs and could translate into reduced economic activity. Yet, the researchers find that French companies invested in energy-saving production technologies. This lowered energy bills and helped them to offset compliance costs such as buying emissions permits or undertaking costly emissions abatement.

Unfounded critiques of the EU Emissions Trading System (ETS)

The Emissions Trading System is the EU’s key tool for reducing greenhouse gas emissions of energy companies, manufacturers and aircraft operators. It covers around 10,000 installations or about 40 percent of the EU’s emissions. Critics have portrayed this market-based regulation as both environmentally ineffective and economically devastating. “We use company data with an unprecedented amount of detail and show that such claims are unfounded,” says Wagner. “The reduction of harmful emissions in the first eight years of the ETS had no detrimental impact on employment or value added.”The ETS is the world’s first and biggest major carbon market and operates as a “cap and trade” system. A cap is set on the total amount of certain greenhouse gases that can be emitted. Companies receive or buy emission allowances which they can trade with one another.

The ETS as the driver of technological change

“We present causal evidence that shows environmental effectiveness of a cap-and-trade system in the industrial sector,” says Wagner. “Despite widespread concerns about the economic costs of climate protection measures, the ETS did not come at the price of output reductions across the board. Instead, many companies invested in new technology which lowered energy consumption and the carbon intensity of production. Therefore, pricing emissions is apparently a good way to make companies aware of potential cost savings and efficiency gains through green technologies.”