Conference Agenda

This paper provides firm-level estimates of the marginal carbon abatement cost from 2003 to 2019, using administrative microdata on the entire German manufacturing sector. We compute the shadow price of reducing CO2 emissions for over 16,000 firms, including about 700 firms regulated under the European Union Emissions Trading Scheme (EU ETS). We describe the evolution of abatement costs across industries and over time, tracking the impact of changes in the policy design and its stringency on firms' behaviour. Our findings imply that marginal abatement costs stayed relatively constant after the EU ETS was introduced and did not show converge over time. We observe substantial heterogeneity within and across industries, and find that firms with low abatement costs reduced their emission intensity. These firms increased output without raising emissions, and we find evidence that they shifted to using greener fuels for their energy needs. However, these firms did not sell more allowances compared to those with higher abatement costs, suggesting that significant gains from trading allowances are still to be realized. These results provide valuable information for policymakers in the European Union and beyond on the actual level of the costs imposed by climate change policy, and its distributional impacts across firms and industries.