Scandinavian Working Papers in Economics

Working Paper Series,
Uppsala University, Department of Economics

No 2011:2: The EU ETS and Firm Profits: An Ex-post Analysis for Swedish Energy Firms

Haisan Yu ()
Additional contact information
Haisan Yu: Department of Economics, Postal: Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden

Abstract: In January, 2005, the EU launched the first international emissions trading system (EU ETS), aimed at reducing carbon emissions in a cost-effective way by means of a market-based instrument. In this paper, we use the treatment/control, before/after design of the natural experiment approach to investigate the treatment effect of the EU ETS on the profitability of a sample of Swedish energy firms in 2005 and 2006. We also investigate whether under-cap and over-cap firms respond differently to the EU ETS. The estimation results in general suggest no significant impact in 2005 and a negative significant impact in 2006. The sub-sample analysis suggests that profitability of under-cap and over-cap firms were affected differently by the EU ETS in 2005, but not in 2006.

Keywords: EU ETS; difference-in-differences; fixed effect

JEL-codes: Q50; Q58

19 pages, November 19, 2010

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