Does the Emission Trading System Reduce Greenhouse Gas Emissions & Coal Consumption and Lead to an Increase in Renewable Energy? – Evidence from OECD Member Countries

Author

Pilmu Ryu, University of KentuckyFollow

Year of Publication

2019

College

Martin School of Public Policy and Administration

Date Available

8-19-2019

Committee Chair

Dr. J. S. Butler

Executive Summary

The Emission Trading System (ETS) on greenhouse gas (GHG) is a climate change policy well-known as a market-based mitigation mechanism. However, policymakers have faced strong opposition of many stakeholders and failed to persuade them in the process to introduce the ETS. Objective evidence on ETS impact not only provides information to policymakers but also may help alleviate controversy between stakeholders and policymakers. Also, empirical results on ETS will be able to contribute to the theoretical economic study of cap-and-trade. In this context, this research aims at empirical analyses of ETS impact with regard to GHG emissions, coal consumption, and renewable energy supply by analyzing panel data from 36 OECD member countries from 1990 to 2016 with fixed effect regression.

The analysis conducted in this capstone shows that ETS introduction helps reduce GHG emissions by an average of 14.8% in comparison with the policy decision that does not introduce ETS as GHG mitigation instrument. In particular, ETS appears to have a significant effect of mitigating emissions of carbon dioxide (CO₂) by an average of 21.6%. The other analysis findings reveal that ETS implementation has an effect on the decrease of coal consumption by an average of 58.2% and the increase of renewable energy supply by an average of 41.3%. Meanwhile, the regression predicting coal consumption indicates that the increase of natural gas consumption and nuclear electricity production links with coal consumption reduction. Overall, this research provides evidence that the introduction or implementation of ETS definitely has impact on the mitigation of GHG emissions, the reduction of coal consumption, and the increase of renewable energy supply. Though this research has limitations that ETS may be accompanied by other policies at the same period and that the degree of ETS alone effects may be overestimated accordingly, it makes sense that ETS alone or together with other policy initiatives is achieving environmental effects.

Recommended Citation

Ryu, Pilmu, "Does the Emission Trading System Reduce Greenhouse Gas Emissions & Coal Consumption and Lead to an Increase in Renewable Energy? – Evidence from OECD Member Countries" (2019). MPA/MPP/MPFM Capstone Projects. 327.
https://uknowledge.uky.edu/mpampp_etds/327