Estimating the Effect of an EU-ETS Type Scheme in Australia Using a Synthetic Treatment Approach

The 2011 Clean Energy Act sought to align Australia's carbon pricing to the 2005 European Union Emission Trading Scheme (EU-ETS) by 2015, but this act was repealed in 2014. We estimate the hypothetical impact of Australia adopting an emissions trading policy in 2005, which corresponds with the establishment of the EU-ETS. We use a synthetic treatment approach that constructs a counterfactual measure of Australian carbon emissions that makes use of the time series properties of pre-2005 and post-2005 emissions in European countries. We find that Australian per-capita carbon emissions would have been lower by about 4.5% as a result of the policy -- a result that is robust to several variations of our methodology.