Assessment of the European Emissions Trading System’s Impact on Sustainable Development

Abstract

This study explores the interaction between the emission trading system and the Sustainable Development Goals. Using an empirical analysis of a sample of European installations covered by the Emission Trading System from 2016 to 2021, we assessed how the system internalized the costs of carbon emissions across economic sectors and analyzed its impact on achieving the Sustainable Development Goals. The results revealed that while the increased efficiency of the emissions trading system had positive effects on environmental taxation and the reduction in economic losses due to climate change, challenges persist in natural resource use and energy dependence. This study offers new insight into the carbon ability pricing policies to properly allocate environmental costs. This study highlights the importance of integrating complementary policy instruments to strengthen effectiveness, given the link between the selected sustainable development and circular economy variables. The results provide stakeholders and policymakers with essential information for optimizing environmental policies and developing integrated approaches. If well implemented, such policies can effectively contribute to the fight against climate change and promote sustainable development by reducing social and environmental costs.