Mitigating climate change will require substantial abatement of GHG emissions from all core economic sectors, mainly through curbing fossil fuel consumption (Fossil fuel combustion is also a principle source of local and regional air and water pollution, because it sets free harmful pollutants such as sulphur dioxide (SO2), nitrogen oxides (NOx), carbon monoxide (CO), or particulate matter (PM10), among others. Curbing fossil fuel consumption is therefore likely to create ancillary benefits in terms of reduced damages to human, animal and plant health, thanks to better air and water quality. A small literature on the ancillary benefits of climate policy has produced estimates ranging from 30% to over 100% of the private costs of carbon abatement, depending on the policy measure, sector and country under study. A common feature of those studies is that they are based on model simulations which are fairly complex and involve multiple steps. A critical shortcoming of the simulation approach is that the estimated ancillary benefits of a policy depend critically on the counterfactual emissions path, which is influenced by new regulation, compliance with regulations, technology, economic development, demography and natural activities. Ours is the first study to estimate the co-benefits of climate policy based on ex-post data from 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 three different 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. |
