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Offset Credits in the EU ETS: A Quantile Estimation of Firm-Level Transaction Costs

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  • Helene Naegele

    (Competition and Consumers, DIW Berlin)

Abstract

International carbon offset certificates were cheaper than European Union Allowances, although they were substitutes within the EU Emissions Trading System (EU ETS). Thus, firms had a strong incentive to use offset certificates. However, a considerable number of firms did not exhaust their offset quota and, by doing so, seemingly forwent profits. While most literature on emissions trading evaluates the efficiency of regulation in a frictionless world, in practice firms incur costs when complying with regulation. In order to assess the relevance of trade-related fixed transaction costs, this study examines the use of international offset credits in the EU ETS. It establishes a model of firm decision under fixed (quantity-invariant) entry costs and estimates the size of such costs rationalizing firm behavior using semi-parametric binary quantile regressions. Comparing binary quantile results with probit estimates shows that high average transaction costs result from a strongly skewed underlying distribution. For most firms, the bulk of transaction costs stems from certificate trading in general, rather than additional participation in offset trading.

Suggested Citation

  • Helene Naegele, 2018. "Offset Credits in the EU ETS: A Quantile Estimation of Firm-Level Transaction Costs," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 70(1), pages 77-106, May.
    • Handle: RePEc:kap:enreec:v:70:y:2018:i:1:d:10.1007_s10640-017-0111-1
    DOI: 10.1007/s10640-017-0111-1
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    Cited by:

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    2. Maogang Tang & Silu Cheng & Wenqing Guo & Weibiao Ma & Fengxia Hu, 2023. "Relationship between carbon emission trading schemes and companies’ total factor productivity: evidence from listed companies in China," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 25(10), pages 11735-11767, October.
    3. Tang, Ling & Wang, Haohan & Li, Ling & Yang, Kaitong & Mi, Zhifu, 2020. "Quantitative models in emission trading system research: A literature review," Renewable and Sustainable Energy Reviews, Elsevier, vol. 132(C).
    4. Jan Abrell & Johanna Cludius & Sascha Lehmann & Joachim Schleich & Regina Betz, 2022. "Corporate Emissions-Trading Behaviour During the First Decade of the EU ETS," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 83(1), pages 47-83, September.
    5. Aleksandar Zaklan, 2020. "Coase and Cap-and-Trade: Evidence on the Independence Property from the European Electricity Sector," Discussion Papers of DIW Berlin 1850, DIW Berlin, German Institute for Economic Research.

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    More about this item

    Keywords

    Binary quantile estimation; CDM; Climate change; Carbon emissions trading; Entry costs; EU ETS; Offset certificates; Semi-parametric estimation; Transaction costs;
    All these keywords.

    JEL classification:

    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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