Regional emission dynamics across phases of the EU ETS

Abstract

This paper explores the relationship between economic growth and CO$_2$ emissions across European regions from 1990 to 2022, specifically concerning the dynamics of emissions growth rates through different phases of the European Union Emissions Trading System (EU ETS). We find that emissions dynamics exhibit significant volatility influenced by changing policy frameworks. Furthermore, the distribution of emissions growth rates is asymmetric and displays fat tails, suggesting the potential for extreme emissions events. We identify marked disparities across regions: less developed regions experience higher emissions growth rates and greater volatility compared to many developed areas, which show a trend of declining emissions and reduced volatility. Our findings highlight the sensitivity of emissions to policy changes and emphasise the need for clear and effective governance in emissions trading schemes.