In the first two phases of the ETS, starting in 2005, all establishments regulated by the ETS
received a free allocation of permits. The researchers compared regulated with unregulated
establishments. “Our findings suggest that regulated manufacturers exited the market at a much
lower rate than unregulated firms,” says Ulrich Wagner from the EPoS Economic Research
Center. “The free emission permits given to those firms as compensating support may have
created economic benefits large enough to offset any incentive to close associated with carbon
compliance costs.”
As of 2013, only establishments in sectors on the so-called Carbon Leakage List were able to
receive continued support. These sectors generate comparatively high emissions and are more
exposed to international competition. The EU wanted to prevent firms in these sectors from
relocating production to countries with more lenient climate regulations.
Fewer exits of establishments receiving continued support
The researchers also examine whether establishments that continued to receive a free
allocation of permits were less likely to exit the market. They find suggestive, but not conclusive,
evidence of lower exit rates among these establishments.
“Overall, our results confirm the findings of other studies that environmental policies, and
efforts to support industries affected by them, can often have quite muted effects on firm
performance,” says Kathrine von Graevenitz. “However, focusing only on employment or wages
may miss important effects on the composition of manufacturing, which is reflected in the
decision to exit the market or stay in operation. We consider this to be a fruitful avenue for
future research.”
About the study
The study uses the German Establishment History Panel, covering the universe of German
establishments, for 2000–2019. The analysis focuses on manufacturing establishments that had
at least 20 employees in at least one year, yielding approximately 75,000–90,000
establishments. The researchers identified establishments regulated under the EU ETS and
establishments receiving the EEG levy exemption, and compared them with matched
establishments of similar size in the same sector.