publications | Eva Franzmeyer

2025

Energy Efficiency Investments under Emissions Regulation: Selection or Incentive?

Eva Franzmeyer

In preparation, 2025

Paper Abstract

This paper studies how firms adapt to climate policy. It quantifies the extent to which observed energy-efficiency investment can be attributed to regulation under the EU Emissions Trading Scheme (ETS). I develop a dynamic optimization model in which firms choose energy-efficiency investment alongside production inputs. The model captures key features of an ETS, including the endogenous determination of firms’ regulatory status. I estimate the model using German firm-level data with detailed measures of energy consumption and energy-efficiency investment. I then conduct a counterfactual analysis by simulating an economy without the ETS. The results show that approximately 9% of observed energy-efficiency investment during 2011–2018 is attributable to the EU ETS.
From Free to Fee: How Emission Permit Allocation Affects Firms

Eva Franzmeyer, Marie Alder, and Benjamin Hattemer

13th IAERE Annual Conference, Departmental Seminar Utrecht University, 2025

Paper Abstract Draft

This study provides new causal evidence on the firm-level effects of reducing free emission permits in emission trading systems. Using a difference-in-differences design, we exploit a reform that altered an eligibility threshold for free permit allocation. Receiving fewer free permits reduced emissions by more than 14 percent relative to firms that retained them. This reduction was accompanied by similar declines in revenue, employment, and assets. We develop a multi-product general equilibrium model that explains these patterns through a novel mechanism linking permit allocation to firms’ decisions. Firms that receive fewer free emission permits terminate their least productive product lines, increasing the market share of the remaining ones. Higher expected profits then encourage earlier adoption of an efficiency-improving technology.
Who Should Pay? Welfare Effects of Carbon Taxes on Consumers and Producers

Eva Franzmeyer

EAERE 2025, AURÖ, 2025

Paper Abstract Draft

This paper evaluates whether taxing the consumption of brown goods is more effective and welfare-efficient than taxing their production. I develop a semi-endogenous growth model with two final goods, green (low-carbon) and brown (carbon-intensive) which are imperfect substitutes in household preferences. I compare three policies: a consumer tax on brown goods, a producer tax on brown inputs, and a subsidy for green innovation. The consumer tax results in a modest welfare loss (-40%) but achieves the largest reduction in brown output (-563%). Relative to the consumer tax, the producer tax entails higher welfare costs and smaller reductions in brown output. By contrast, the research subsidy generates a welfare gain while substantially curbing brown output. These findings suggest production-side taxes are least favorable, while consumer taxes and innovation subsidies reduce emissions at lower welfare costs or even deliver welfare gains.