Evaluating the Impact of the European Union Emissions Trading System (EU ETS) on Corporate Outcomes

This thesis investigates the economic and financial implications of the European Union Emissions Trading System (EU ETS) for regulated firms. As the cornerstone of the EU’s climate policy, the ETS aims to reduce greenhouse gas emissions through a market-based mechanism. The analysis links firm-level data with verified emissions and transaction records from the EU ETS Transaction Log, assessing how the policy has affected companies' behavior and financial performance over time. The research is framed within the broader debate on the relationship between environmental regulation and firm competitiveness. On the one hand, the traditional view argues that environmental compliance increases costs, thereby reducing firms' profitability and competitiveness. On the other hand, the Porter Hypothesis suggests that well-designed regulation can stimulate innovation, offset compliance costs, and ultimately enhance firm performance. The empirical findings support the idea that responses to the EU ETS are heterogeneous across sectors and firms, shaped by factors such as carbon intensity, market structure, and financial capacity. This contributes to the literature on transition risk by providing evidence on how carbon pricing affects firms in practice, and under which conditions environmental regulation can align with sustainable economic performance.