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Home Country Bias in International Emissions Trading: Evidence From the EU ETS

Author

Listed:
  • Hintermann, Beat

    (University of Basel)

  • Ludwig, Markus

    (University of Basel)

Abstract

We examine the pattern of allowance trades in the European Union Emissions Trading System (EU ETS) using highly disaggregated trading data and identify a significant and robust home market bias. Our results point to informational transactions costs that increase when trading across national borders. The existing trade pattern in goods and services explains two thirds of the home bias, with the remainder due to other causes. Our finding suggests that firms make use of existing trade networks to overcome search costs in bilateral allowance trade. Since the home bias differs across firms, it follows that marginal abatement costs are not equalized across market participants of the EU ETS.

Suggested Citation

  • Hintermann, Beat & Ludwig, Markus, 2022. "Home Country Bias in International Emissions Trading: Evidence From the EU ETS," Working papers 2022/07, Faculty of Business and Economics - University of Basel.
    • Handle: RePEc:bsl:wpaper:2022/07
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    More about this item

    Keywords

    Emission permit market; EU ETS; transactions costs; gravity model; home bias;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F18 - International Economics - - Trade - - - Trade and Environment
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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