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Reviewing the evidence on the innovation impact of the EU Emission Trading System

Author

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  • Karoline Rogge

    (SPRU – Science Policy Research Unit, University of Sussex, Brighton BN1 9SL, UK; Fraunhofer Institute for Systems and Innovation Research (Fraunhofer ISI), Karlsruhe, Germany)

Abstract
The Paris Climate Agreement calls for decarbonization of the economy in the second half of this century. This requires a radical redirection and acceleration of technological change towards low- and particularly zero-carbon solutions. Global carbon pricing is seen as a key enabler for such decarbonization, with the European Union’s Emission Trading System (EU ETS) serving as an important pillar. In this paper, I therefore re-view the evidence on the innovation impact of the EU ETS. The review shows a very limited effect of the scheme on technological innovation, but there are clear signs of it having stimulated organizational innovation, with the impact being more pronounced for the electricity sector than for industry. The initially high expectations of the EU ETS regarding technological innovation largely dissipated once the scheme’s lack of strin-gency became apparent and prices collapsed accordingly. Also, for many of the rather incremental innovations that have taken place, the EU ETS was shown to be only one contributing factor among others, with the broader policy mix and long-term targets playing a particularly pivotal role in stimulating innovation. In contrast, there is clear evidence that the EU ETS has been a key driver of various organizational innovations, including making climate change a top management issue. However, so far, these or-ganizational innovations have only had limited effects on shifting corporate strategies towards low-carbon solutions because of low carbon prices, the relatively high share of free allocations in industry, and more pressing business concerns. Despite this, the scheme’s positive impact on organizational innovations should not be underestimated, as these constitute a necessary precondition for future technological innovations. The findings suggest that the Commission’s proposal for the fourth trading period of the EU ETS points in the right direction, but further efforts will be needed to significantly in-crease the scarcity of EU allowances and the share of auctioning in order to fully un-leash the scheme’s transformative power. If the identified shortcomings are not ad-dressed, the EU ETS cannot play its foreseen role in guiding the decarbonization of the European economy, for which innovations in low-carbon solutions are a fundamental requirement.

Suggested Citation

  • Karoline Rogge, 2016. "Reviewing the evidence on the innovation impact of the EU Emission Trading System," SPRU Working Paper Series 2016-09, SPRU - Science Policy Research Unit, University of Sussex Business School.
    • Handle: RePEc:sru:ssewps:2016-09
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    File URL: http://www.sussex.ac.uk/spru/swps2016-09
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    References listed on IDEAS

    as
    1. Lucy Baker, 2016. "Technology Development in South Africa: The Case of Wind and Solar PV," SPRU Working Paper Series 2016-05, SPRU - Science Policy Research Unit, University of Sussex Business School.
    2. Yuti Ariani Fatimah & Saurabh Arora, 2016. "Nonhumans in the Practice of Development: Material Agency and Friction in a Small-Scale Energy Program in Indonesia," SPRU Working Paper Series 2016-04, SPRU - Science Policy Research Unit, University of Sussex Business School.
    3. Ciarli, Tommaso & Valente, Marco, 2016. "The complex interactions between economic growth and market concentration in a model of structural change," Structural Change and Economic Dynamics, Elsevier, vol. 38(C), pages 38-54.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Ren, Shenggang & Yang, Xuanyu & Hu, Yucai & Chevallier, Julien, 2022. "Emission trading, induced innovation and firm performance," Energy Economics, Elsevier, vol. 112(C).
    2. Ohid Yaqub, 2016. "Serendipity: Towards a taxonomy and a theory," SPRU Working Paper Series 2016-17, SPRU - Science Policy Research Unit, University of Sussex Business School.
    3. Karoline S. Rogge & Elisabeth Dütschke, 2017. "Exploring Perceptions of the Credibility of Policy Mixes: The Case of German Manufacturers of Renewable Power Generation Technologies," SPRU Working Paper Series 2017-23, SPRU - Science Policy Research Unit, University of Sussex Business School.
    4. Mari Martiskainen, 2016. "The role of community leadership in the development of grassroots innovations," SPRU Working Paper Series 2016-10, SPRU - Science Policy Research Unit, University of Sussex Business School.
    5. Laur Kanger & Johan Schot, 2016. "User-made Immobilities: A Transitions Perspective," SPRU Working Paper Series 2016-13, SPRU - Science Policy Research Unit, University of Sussex Business School.
    6. Johan Schot & Laur Kanger, 2016. "Deep Transitions: Emergence, Acceleration, Stabilization and Directionality," SPRU Working Paper Series 2016-15, SPRU - Science Policy Research Unit, University of Sussex Business School.
    7. Wolfgang Eichhammer & Nele Friedrichsen & Sean Healy & Katja Schumacher, 2018. "Impacts of the Allocation Mechanism Under the Third Phase of the European Emission Trading Scheme," Energies, MDPI, vol. 11(6), pages 1-23, June.
    8. Dongya Li & Maosheng Duan & Zhe Deng & Haijun Zhang, 2021. "Assessment of the performance of pilot carbon emissions trading systems in China," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 23(3), pages 593-612, July.

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    More about this item

    Keywords

    climate policy; emission trading; EU ETS; innovation;
    All these keywords.

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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