Trading with Carbon:Technological Trends in Swedish Industries from a Climate Perspective

Abstract

As means for meeting the goals of the Kyoto protocol the European Union launched the Emission Trading Scheme (ETS) for tradable permits on carbon dioxide in 2005. One of the purposes of ETS is to create incentives for firms to invest in carbon abatement technology. Therefore an important measure of the success of the environmental policy is to see whether diffusion of new technologies regarding carbon dioxide emissions has changed. We look at the determinants for carbon abatement technology in Sweden during 2002-2008 in five industrial sectors and the energy sector. Using panel data at firm level our empirical results show that since the start of emission trading, carbon abatement investments have increased. By controlling for other factors we find it likely that this depends on the ETS. Our results also point at the importance of less grandfathering to further increase diffusion. Another finding is that there is internal learning by doing, for instance green research and development and earlier environmental protection investments increase the probability of adopting carbon abatement technology.