The Co-benefits of Climate Policy: Evidence from the EU Emissions Trading Scheme

By Laure B. de Preux , Ulrich J. Wagner

Abstract

Mitigating climate change by curbing fossil fuel consumption is bound to reduce co-pollution jointly emitted with carbon dioxide, and hence to create ancillary benefits in terms of reduced damages to human health. Simulation-based estimates of such ancillary benefits range from 30% to over 100% of the costs of abating carbon dioxide. These estimates are sensitive to the assumed counterfactual emissions path, which is influenced by new regulation, compliance with regulations, technology, economic development, demography and natural activities. We address this issue in an ex-post analysis of the impact of climate policy on co-pollution emissions. We study the world’s largest cap-and-trade system for CO2 emissions, the EU Emissions Trading Scheme (EU ETS). Using newly matched installation-level data from the EU Transaction Log and the European Pollution Release and Transfer Register, we estimate counterfactual emissions in various ways in order to triangulate how emissions trading reallocated pollution emissions across Europe. We discuss the implications of our estimates for the efficiency and equity of this policy.