Please join the Department of Food, Agricultural and Resource for the "Empirical Evidence of CO2 Reduction through Emission Trading in European Union, New Zealand and the Republic of Korea" Seminar presented by Dr. Gal Hochman, Professor of Environmental and Resource Economics in the Department of Agricultural and Consumer Economics at the University of Illinois Urbana-Champaign.

Abstract

Emission trading schemes (ETS) are among the primary policy instruments to reduce greenhouse gas emissions(GHGs). Currently, more than 35 ETS are in operation at multi-national, national and sub-national levels around the world. Assessing how effective these systems are in reducing emissions is a key empirical question. This study examines the effectiveness of three large-scale ETS implemented by the European Union (EU-ETS), New Zealand (NZ-ETS), and Republic of Korea (SK-ETS) in reducing CO2 emissions. Using a counterfactual estimation framework with time-series cross-sectional data, the analysis provides causal estimates of each system’s impact. The findings show that the EU-ETS led to an average reduction of 19.9% in electricity-sector CO₂ emissions and 14.2% in total CO₂ emissions during the 2005–2019 period, relative to a no-ETS scenario. In New Zealand, the ETS reduced power sector emissions by 30.6%, but it had no measurable effect on total national emissions—largely because nearly half of New Zealand’s emissions come from agriculture, a sector not covered by the NZ-ETS. In contrast, the SK-ETS reduced national CO₂ emissions by 3.4% but had no significant effect on emissions from the power sector. While comparing the three ETS in terms of their effectiveness in reducing CO2 emissions from the power sector during the first five years of their implementation, NZ-ETS is found most effective with 29.8% CO2 reduction, followed by EU-ETS with 9.2% CO2 reduction.