Representing one research project within the European Competitiveness Report 2007, this research project assessed the competitiveness effects of trading emissions and fostering technologies to meet the EU emission reduction targets under the Kyoto Protocol. The project analysed the state-of-the-art of recent academic developments regarding competitiveness effects of the EU Emissions Trading Scheme implemented through the National Allocation Plans (NAPs) and the fostering of innovative technologies. Based on data provided by the NAPs of the EU ETS as approved by the European Commission, a model-based policy analysis assessing the competitiveness effects of the EU Emissions Trading Scheme was performed by the ZEW. Furthermore, a model-based policy analysis investigating the competitiveness effects of improved efficiency through exploitation of the existing biofuel potential was conducted. Complementing the model-based assessments, an empirical analysis addressing the competitiveness effects of the current allowance allocation under the EU Emissions Trading Scheme was undertaken by the ZEW. The analyses by ZEW show that the EU Emissions Trading Scheme had only moderate impacts on macroeconomic EU competitiveness – however, these impacts differ substantially between the sectors of EU economies.