The thesis is comprised of four papers with a central theme of the relationship between climate policy and technological change. The first paper, titled “Abatement and Allocation in the Pilot Phase of the EU ETS,” makes use of historical industrial emissions data from 1990 onwards to assess the level of abatement and over-allocation that took place across European countries during the pilot phase (2005-2007) of the European Union Emission Trading System. Using a dynamic panel data model, we estimate the counterfactual (business-as usual) emissions scenario for EU member states. Comparing this baseline to allocated and verified emissions, we conclude that both over-allocation and abatement occurred, along with under-allocation and emissions inflation. Over the three trading years of the pilot phase from the macro perspective we find that abatement did occur but policy design features may have impaired the overall performance of the policy during the initial period of trading as emissions inflation and under-allocation were also detected. Two papers based on micro level analyses support these conclusions as firms report a wide variety of responses to the price on emissions both in the Irish context, where national allocation was stringent compared to the rest of the EU, and across multiple European countries. For the second paper of the thesis, “Technological change and the EU ETS: the case of Ireland,” we survey Irish EU ETS firms to study the occurrence of CO2 emissions friendly technological change during the pilot phase as well as the reasons firms did or did not alter their technology portfolios in response to the price of emissions.
The second micro-level paper titled, “The EU ETS and Innovation: Evidence from Interviewing Managers” uses data collected through the use of innovative survey techniques with 800 managers across 6 European countries. Survey response data is combined with accounting data, and emissions data to study how firms act on the emissions trading market in terms of abatement and compliance strategies. Secondly, the paper uncovers the channels through which participation in the EU ETS induces emissions reductions and fosters innovation in both products and processes. In the final paper, titled “Understanding Innovation in Carbon Capture and Storage: Lessons from Patents,” we take a more global perspective and country level patent counts from 1977-2006 are used to analyze the determinants of innovation in technologies used in carbon capture and storage. A panel data set is created using macroeconomic data, energy and policy data from the International Energy Agency. After estimating a variety of specifications we find that the commencement of policies related to CCS and/or energy production have a significant positive effect on patent applications with flexible instruments such as tax, subsidies or permit trading systems outperforming other policy tools such as traditional regulation, or voluntary agreements in stimulating innovation as measured through patent applications.
