The EU ETS carbon-price signal & manufacturing emissions
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Date
2026-09-23
Authors
Παξινού, Δανάη
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Abstract
Decarbonising European manufacturing is a central policy challenge, as energy- and carbon-intensive industries must reconcile emissions reductions with production and competitiveness under high energy costs, substantial investment requirements and strong international competition. This dissertation examines whether stronger EU Emissions
Trading System (EU ETS) carbon-price signals are associated with subsequent CO2 emissions adjustment in European manufacturing. Using a harmonised panel of the EU27 and 11 manufacturing sectors over 2012–2023, the empirical analysis employs two-way fixed-effects models and exploits annual variation in EUA prices interacted with a predetermined classification of ETS-exposed sectors. Higher EUA-price exposure is consistently associated with lower subsequent CO2 emissions growth. In the preferred annual specification, a EUR 10/tCO2 increase in the lagged EUA price is associated with approximately 1 percentage point lower annual emissions growth in ETS-exposed sectors relative to non-exposed manufacturing. The association persists across one-, two-, and three-year growth horizons and two non-overlapping five-year windows, suggesting that the relationship extends beyond short-run annual fluctuations to medium-run adjustment. Level specifications likewise associate greater prior EUA-price exposure with lower subsequent CO2 emissions, showing that the result is not specific to a growth-rate formulation. An accounting decomposition points to energy-related adjustment rather than production contraction. Annual estimates indicate lower energy use, while multi-year results point to declining energy intensity as the principal margin associated with lower emissions, with no systematic evidence of production contraction or fuel decarbonisation. Revenue-based measures of CO2-related, energy, and environmental taxation leave the EUA-price relationship broadly unchanged, with no systematic evidence that these fiscal conditions moderate the association between EUA prices and manufacturing emissions.
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Keywords
EU emissions trading system (EU ETS), European union allowance (EUA) prices, Carbon-price signal, Manufacturing emissions, Emissions growth, Panel data, Two-way fixed-effects models