Epsilon Archive for Student Projects

Abstract

This study investigates the impact of carbon pricing and firm-level total emissions on the profitability of Swedish firms participating in the European Union Emission Trading System (EU ETS) from 2013 to 2022. By analysing firm-level data, the research aims to determine how changes in carbon prices and in emission levels affect firms’ profits. The EU ETS, a cap-and-trade system, is designed to reduce greenhouse gas emissions by setting a limit on emissions and allowing the trading of emission permits. As the system evolves and becomes increasingly restrictive, firms face the dual challenges of purchasing additional permits and reducing emissions to comply with decreasing caps.
The study uses OLS-regression analysis to examine the relationship between carbon pricing, firm-level total emission, and profitability, using firm-level data on profits, emissions and purchases of emissions permits. The results from the thesis find a weakly positive relationship between firm-level EBIT, emissions and permit price as well as a weakly negative relationship between EBIT and a binary variable indicating whether firms were a net buyer of permits or not.
This research provides insights into the economic implications of environmental regulations and offers policy recommendations to enhance the effectiveness of carbon pricing strategies. The results underscore the potential for carbon pricing to achieve sustainable economic growth while mitigating environmental impact, thereby contributing to the broader discourse on climate policy and firm sustainability.