Economic performance and investments under emissions trading: Untangling the effects of a staggered regulation

We study the effects of the EU Emissions Trading System on the economic performance and investments of Dutch manufacturing firms. Motivated both by sizable differences between firms that became regulated in different phases and by a gradual increase in regulatory stringency, we pay close attention to the staggered design of the ETS as well as to potential treatment effect heterogeneity. We base our estimation on recent advances in the estimation of treatment effects and make use of administrative microdata. Our results align with those of the previous literature. Even when studying the more stringent third phase and when using estimators appropriate for the staggered ETS setting, there seems to be no discernible effects of the ETS on firms’ economic performance. We also do not find any statistically significant effect on the investment behavior of regulated firms. • We find no discernable effects of the EU ETS on firm performance in the Netherlands. • Regulated firms also do not significantly increase investments. • These conclusions also hold for the more stringent Phase 3 of the EU ETS. • Findings hold when using estimators tailored towards staggered treatment design. • Bias of EU ETS studies not using appropriate staggered estimators is likely small.