Essays on the Competitiveness Impacts of Environmental and Industrial Policies

This dissertation is a collection of three empirical essays in the fields of environmental economics and industrial organization. The essays investigate the impacts of environmental policy on manufacturing sector competitiveness, with a particular focus on the European Union Emissions Trading System (EU ETS).
The first essay addresses a key concern of the EU ETS—carbon leakage. By examining international trade flows, the study assesses whether carbon-intensive imports to EU ETS countries have increased since the system’s implementation, indicating a shift in production to countries not bound by the regulation. Using a gravity model and a comprehensive country and sector level dataset from 2000 to 2018, the essay finds evidence of carbon leakage, with a moderate increase in carbon content in imports.
The second essay evaluates the effectiveness of the EU ETS indirect cost compensation subsidy, which aims to offset electricity cost increases for energy-intensive industries. Focusing on manufacturing plants in Finland, the analysis reveals no improvement in plant competitiveness metrics for subsidy recipients. The results raise questions about the subsidy’s intended impact and the rationale behind its allocation.
The third essay explores the broader effects of the EU ETS on plant-level performance within the Finnish manufacturing sector. Using data spanning from 1995 to 2019, the essay examines key indicators such as production value, wages, and employment. The results suggest that the EU ETS has neither significantly hindered nor enhanced the competitiveness of manufacturing plants. While emission reductions were observed in EU ETS plants, the study finds no significant impact on the financial performance of regulated firms.
Collectively, this thesis contributes to the understanding of environmental regulation and its economic consequences. The findings have important implications for policymakers aiming to balance climate goals with industrial competitiveness, offering insights into the design and optimization of different policy tools.