Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/310435 
Year of Publication: 
2024
Series/Report no.: 
Working Paper No. 1/2024
Publisher: 
Norges Bank, Oslo
Abstract: 
This paper studies the drivers of emission reductions in the carbon market of the European Union Emission Trading System (EU ETS) since its inception in 2005. We introduce a novel empirical framework that facilitates the joint identification of simultaneous demand and supply shocks underlying the European carbon market. We find that emission supply restrictions of the EU ETS were the dominant driver of emissions reductions, reducing emissions by 46%. However we also find that two opposing emission demand factors also played an important role. Demand from industrial economic activity increased emissions by 15%, while other demand-side factors, primarily reflecting the transition to low-carbon economies, reduced emissions by 21%.
Subjects: 
climate policy
carbon pricing
emission trading system
cap and trade
demand and supply
JEL: 
Q41
Q54
Q58
Persistent Identifier of the first edition: 
ISBN: 
978-82-8379-308-6
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Working Paper
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