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

The EU ETS indirect cost compensation subsidy was given out in the 2010s to compensate firms for increased electricity costs caused by the EU Emission Trading System, with the aim to support the competitiveness of producers in the EU. This paper studies the effects of the compensation subsidy on firm performance empirically with production plant level data from Finland. There is no clear evidence that the electricity costs have in fact been higher during the subsidy period, and the way that the subsidy was designed was not efficient. Perhaps for these reasons, the results find no indication of improved firm performance for the subsidy recipients.