International Environmental Agreements: Politics, Law and Economics, Vol 13, No 1, 2013, pp. 31-48.
Studies of the EU Emissions Trading System (ETS) abound. Much is known about the economic incentives they contain to promote abatement and innovation, and studies are focusing on the short-term aggregate effects at sector and system levels. Less, however, is known about how the EU ETS affects companies, including their strategies, long-term innovation plans, and deployment of low-carbon solutions. This article presents an analytical framework of how companies are likely respond to regulation like the EU ETS, subsequently applied to companies in the oil industry, represented by the major multinationals ExxonMobil and Shell. The analysis finds that these companies had quite different initial responses to the ETS, whereas their long-term strategic responses to carbon pricing show signs of convergence.