The European Union emissions trading system and its impact on eco-innovation

• Autor(a) principal: Osses, Lennart David
• Data de Publicação: 2019
• Tipo de documento: Dissertação
• Idioma: eng
• Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
• Texto Completo: http://hdl.handle.net/10362/106918
• topic: Cap-and-trade system; Difference-in-difference estimation; Eco-innovation; Eu Ets; Induced innovation; Patent analysis; Policy analysis; Porter Hypothesis; Propensity score matching; Domínio/Área Científica::Ciências Sociais::Economia e Gestão

The European Union Emissions Trading System (EU ETS) is the world’smost extensiveemissionscap-and-trade system. The Porter Hypothesis states that a policylike the EU ETS can induce eco-innovation and ultimately alter the financial performanceof regulatedfirms. Nevertheless, previous research has not yet comprehensively confirmed the validity of the Porter Hypothesis in cap-and-trade systems in general, and in the EU ETS specifically. Exploiting installation-level inclusioncriteria, thepaper assessesthecausal impact of the EU ETS on firm’s eco-patent outputand return on assetsby followinga matched difference-in-difference approach. In line with the weak Porter Hypothesis, itis found thatthe second phase of EU ETS altered the eco-patent output of regulated firmsin the sampleby 1.8%, mainly inducinginnovationsin German companies.Reasons for therather low policy effect entailtheinnovation-impedingimpact ofthe Financial Crisis, an oversupply of allowances,and the subsidized deployment of renewable energy sources to electricity, which resulted inlow permitprices. Contraryto the strong Porter Hypothesis, the policydidnot enhancefinancial performance of regulated companies, which can befurtherexpoundedby the time lag associatedwith the profitability of eco-innovations. Deriving from thefindings,policy makers should enact EU ETS reforms focused ondecreasing the emission cap, introducing means to stabilize the allowanceprice, carefully assessing if the scheme can be extended to other sectors, and launching other eco-innovation enhancing instruments.