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Coase and Cap-and-Trade: Evidence on the Independence Property from the European Electricity Sector

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  • Aleksandar Zaklan

Abstract

This paper provides an empirical test of the Coase Theorem. I analyze whether emissions are independent from allowance allocations in the electricity sector regulated under the EU's Emissions Trading System (EU ETS). Exogenous variation in levels of free allocation for power producing installations enables a difference-in-differences strategy. The analysis reveals that a change in al- location levels does not significantly affect emissions, either at the plant or firm level. However, I identify an adjustment period with temporarily lower emissions for some firms. The results suggest that policy makers may use free allocation as a political tool without compromising the program's cost-effectiveness.

Suggested Citation

  • 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.
    • Handle: RePEc:diw:diwwpp:dp1850
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    References listed on IDEAS

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    Cited by:

    1. Jonathan Colmer & Ralf Martin & Mirabelle Muûls & Ulrich J. Wagner, 2020. "Does pricing carbon mitigate climate change? Firm-level evidence from the European Union emissions trading scheme," CEP Discussion Papers dp1728, Centre for Economic Performance, LSE.
    2. 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.

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    More about this item

    Keywords

    Coase theorem; independence property; cap-and-trade; EU ETS; greenhouse gas emissions;
    All these keywords.

    JEL classification:

    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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