Andrea Ciaccio, Francesco Moscone, Elisa Tosetti
arXiv 17 Dec 2025 · Econometrics
arXiv:2512.15377 · PDF · Extracted main text
In this paper we investigate the causal impact of the European Union Emissions Trading System, a cap-and-trade scheme limiting greenhouse gas emissions of firms, on their environmental performance. Although previous studies have focused primarily on the effect of the emission cap imposed by the policy, we argue that the trading mechanism creates complex interdependencies among firms that can change the policy's intended effects. We develop a novel Difference-in-Differences approach that disentangles the direct causal effects of the scheme on regulated firms from the indirect spillover effects arising from trading among firms. By incorporating potential interference between treated units, our methodology allows a more comprehensive assessment of the policy's overall effectiveness. Monte Carlo simulations show that our proposed estimators perform well in finite samples, confirming the reliability of our approach. To assess the direct and indirect effects of the scheme, we construct a novel database on emissions of European industrial sites by matching information on treated plants from the European Commission's Community Independent Transaction Log with emission data from the European Pollutant Release and Transfer Register for the years from 2001 to 2017. We find that the scheme reduced emissions only for non-trading plants, but such reduction is entirely offset when accounting for spillovers from trading plants, thus suggesting that the trading mechanism neutralizes the environmental benefits of the policy. Our findings have important implications for the design of future environmental policies and the ongoing evaluation of cap and trade policies.
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The works this paper leans on most, across its whole bibliography — not restricted to papers in our corpus. Ranked by composite intensity, which combines how often a work is mentioned, how many sections mention it, and how much of that falls in the main text rather than the appendix.
| Reference | Intensity | Mentions | Sections | Main text | |
|---|---|---|---|---|---|
| 1 | Callaway, Brantly and Sant'Anna, Pedro HC (2021) Difference-in-differences with multiple time periods | 0.956 | 8 | 3 | 88% |
| 2 | Bellégo, Christophe and Benatia, David and Dortet-Bernadet, Vincent (2025) The chained difference-in-differences | 0.860 | 11 | 4 | 64% |
| 3 | Colmer, Jonathan and Martin, Ralf and Muûls, Mirabelle and Wagner, U… (2025) Does Pricing Carbon Mitigate Climate Change? Firm-Level Evidence from the European Union Emissions Trading System | 0.644 | 2 | 2 | 100% |
| 4 | Dechezleprêtre, Antoine and Nachtigall, Daniel and Venmans, Frank (2023) The joint impact of the European Union emissions trading system on carbon emissions and economic performance | 0.644 | 2 | 2 | 100% |
| 5 | Calel, Raphael (2020) Adopt or Innovate: Understanding Technological Responses to Cap-and-Trade | 0.644 | 2 | 2 | 100% |
| 6 | Kyle Butts Difference-in-Differences Estimation with Spatial Spillovers | 0.511 | 2 | 1 | 100% |
| 7 | Borusyak, Kirill and Jaravel, Xavier and Spiess, Jann (2024) Revisiting Event-Study Designs: Robust and Efficient Estimation | 0.405 | 1 | 1 | 100% |
| 8 | Enamorado, Ted and Fifield, Benjiamin and Imai, Kosuke (2019) Using a Probabilistic Model to Assist Merging of Large-Scale Administrative Records | 0.405 | 1 | 1 | 100% |
| 9 | Fiorini, Mario and Lee, Wooyong and Pfeifer, Gregor (2024) A Simple Approach to Staggered Difference-in-Differences in the Presence of Spillovers | 0.405 | 1 | 1 | 100% |
| 10 | Goodman-Bacon, Andrew (2021) Difference-in-differences with variation in treatment timing | 0.405 | 1 | 1 | 100% |
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