Carbon Pricing and Coal Displacement in the European Union: Complementarity Between Price Signals and Phase-Out Commitments, 2005–2024

Abstract

Whether the European Union Emissions Trading System has influenced the composition of electricity generation remains contested, and the evidence rests largely on aggregate European time series in which carbon prices and clean energy indicators rise together. We show that this design cannot separate a price effect from a common trend: in EU-27 data for 2005–2024, a linear time trend alone accounts for 98 per cent of the variation in renewable electricity, and the allowance price loses all explanatory power once a trend is included. We therefore construct a panel of the 27 Member States over 2005–2024 and identify the effect of carbon pricing from differential exposure, interacting the common allowance price with national fossil generation shares measured over 2000–2004, before the system existed. Three results follow. Carbon cost pressure displaces coal: a one-euro increase in the allowance price reduces the coal share of generation by 0.138 percentage points per unit of pre-ETS coal exposure, and this estimate is robust to country-specific linear trends. The effect is fuel-specific, operating through coal exposure but not gas exposure, as the difference in carbon content implies. Carbon pricing has no detectable effect on renewable deployment; the estimate is a precise null that excludes effects of more than roughly ±0.15 percentage points. Finally, the coal effect is conditional on the policy framework: it is −0.200 in Member States that had adopted a national phase-out commitment by 2019 and statistically indistinguishable from zero elsewhere, with the difference significant at conventional levels. Carbon pricing and phase-out commitments appear to function as complements rather than substitutes, with direct implications for the design of price floors and the extension of emissions trading to jurisdictions without national exit trajectories.

The authors' abstract, as published at the source. Energies, 2026 · DOI ↗