Norges Bank

Working Paper

The Drivers of Emission Reductions in the European Carbon Market

Hilde C. Bjørnland, Jamie L. Cross and Felix Kapfhammer
Working Paper


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 identi cation 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%.

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ISSN 1502-8143 (online)

Published 1 February 2024 13:45
Published 1 February 2024 13:45