Does compensating firms for indirect carbon costs work? Evidence from Finnish manufacturing

The EU ETS indirect cost compensation subsidy scheme was introduced across 10 EU countries in the 2010s to alleviate firms’ increased electricity expenses resulting from the EU Emission Trading System. Its principal goal was to bolster the competitiveness of EU-based producers and prevent the offshoring of production. This study empirically investigates the impact of this compensation subsidy on firm performance, employing detailed production plant data from Finland. Notably, there is no conclusive evidence indicating a definitive surge in electricity costs in Finland during the subsidy period. Moreover, the structure of the subsidy scheme itself seems to have suffered from inefficiencies. Consequently, my research findings do not substantiate any discernible enhancement in the competitiveness of firms benefiting from this subsidy program. The only observed effect is an increase in electricity purchases by the subsidized plants, which does not inherently translate to enhanced competitiveness.