Beyond CO2

Emissions trading systems (ETS) have become a central policy instrument for reducing downstream CO2 emissions, yet their ability to influence upstream fugitive emissions remains less well understood. Using sector-disaggregated CO2 and fugitive emission data for G20 economies from 1990 to 2023, this study examines the impacts of ETS adoption across six major emitting sectors within a staggered difference-in-differences framework. The results indicate that ETS implementation is associated with substantial reductions in downstream CO2 emissions, which typically emerge after a 1–2 year lag. The abatement dynamics are highly heterogeneous: the power and transport sectors respond relatively rapidly (within one year), whereas the building sector adjusts more gradually, with effects taking up to a decade to fully materialize. With respect to upstream fugitive emissions, dominated by methane, we find evidence of a statistically significant decline following ETS adoption. However, we interpret this reduction as a behavioral spillover primarily driven by indirect fossil energy demand contraction, rather than as the result of explicit institutional governance of methane emissions. These findings suggest that while ETS can generate cross-segment spillover effects, its effectiveness remains conditional and bounded by its CO2-centric design. They further highlight the importance of considering methane monitoring, reporting, and verification (MRV), as well as targeted upstream instruments, in future discussions on the evolution of carbon market frameworks

Corporate governance · Emissions trading · Fugitive emissions · Greenhouse gas · Spillover effect · Unintended consequences · Climate Change Policy and Economics · Environmental Impact and Sustainability · Integrated Energy Systems Optimization