The EU aims to put Europe on track toward a low carbon energy economy. The key instrument to realize this objective is the EU Emissions Trading System (ETS), covering over 10,000 industrial installations. The main purpose of the EU ETS is to reduce GHG emissions in a cost-effective way by providing an incentive to develop and implement climate friendly technology in the sectors and companies covered by the system. Studies of the EU Emissions Trading System (ETS) abound. We have, however, virtually no systematic empirical knowledge of how the EU ETS actually affects companies, their strategies, long-term innovation and deployment of low carbon solutions. Such knowledge is of particular importance given that climate ‘friendly’ innovation mainly takes place in the private sector and climate change is a long-term challenge. This paper will first develop an analytical framework for how we can assess and explain companies’ responses to EU climate policy with a specific emphasis on the EU ETS. The framework is based on the so-called Porter hypothesis claiming that innovation in firms is positively related to the ‘stringency’ of governmental regulation. Secondly, this framework will be applied to assess corporate responses at collective and individual levels in different industry sectors.
