Control of externalities , emissions trading , economic performance , manufacturing , difference-in-differences , nearest neighbor matching , stochastic production frontier
Abstract:
We investigate the effect of the European Union Emissions Trading System (EU ETS) on the economic performance of manufacturing firms in Germany. Our
difference-in-differences framework relies on several parametric conditioning strategies and nearest neighbor matching. As a measure of economic performance, we use
the firm specific distance to the stochastic production frontier recovered from offcial German production census data. None of our identification strategies provide evidence for a statistically significant negative effect of emissions trading on economic
performance. On the contrary, the results of the nearest neighbor matching suggest that the EU ETS rather had a positive impact on the economic performance of the regulated firms, especially during the first compliance period. A subsample analysis
confirms that EU ETS increased the effciency of treated firms in at least some two-digit industries.
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