Has the EU ETS been efficient in reducing carbon dioxide emissions without harming firm revenue?

Abstract: The increasing urgency of climate change has raised the need for effective climate policy. The European Union emissions trading system (EU ETS) is the world’s first and largest ‘cap and trade’ policy which aims at reducing carbon dioxide emissions at the most cost-efficient allocation. The iron and steel industry is the largest emitter of carbon dioxide emissions in the Swedish industry sector. Yet, it has a high potential of green innovation, such as the development of fossil free steel. The purpose of this thesis is to examine to what extent the price development of the tradable allowances (EUAs) has had on carbon dioxide emissions and revenue for firms within the Swedish iron and steel industry. This thesis conducts a quantitative study on the price development of EUAs and the impact on carbon dioxide emissions and revenue. The research question is answered by the empirical analysis of this thesis, previous research and the theoretical framework. The findings of this thesis indicate that an increase in the price development of EUAs is associated with a reduction in carbon dioxide emissions and an increase in revenue for firms in the Swedish iron and steel industry.