Abstract

The Emission Trading System (ETS) has become awidely adopted market-based instrument for controlling carbonemissions. This study applies a difference-in-differences (DID)approach, supplemented by a β-convergence analysis, toevaluate the impact of ETS policies in California and states inthe Regional Greenhouse Gas Initiative (RGGI) on CO2 emissions. The results reveal clear heterogeneity: While statessuch as Maine, Massachusetts, Maryland, New Hampshire, andNew Jersey achieved significant reductions, the effects inCalifornia, Connecticut, and Delaware are limited, and NewYork, Rhode Island, and Vermont show no evidence ofmitigation. These variations reflect differences in energy andindustrial structures, allowance price dynamics, and policyimplementation. The findings highlight that effective ETSdesign requires sufficient price stringency, broad sectoralcoverage, and strong enforcement mechanisms, offering lessonsnot only for U.S. states but also for emerging carbon markets.