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Firm Trading Behaviour and Transaction Costs in the European Union’s Emission Trading System: An Empirical Assessment

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Abstract

To the best of our knowledge, this study is one of the first to empirically analyse the trading behaviour of all ETS firms during the first phase of the EU’s Emissions Trading System. We use a unique dataset which allows investigating the importance of permit trading transaction costs, such as information costs and search costs. This paper shows that transaction costs can play an important role in the initial years of the programme. These costs are significant in explaining why a number of ETS firms did not sell their unused allowances on the market. This study also supports the concerns that transaction costs might be excessive for smaller participants.

Suggested Citation

  • Jaraite, Jurate & Kažukauskas, Andrius, 2012. "Firm Trading Behaviour and Transaction Costs in the European Union’s Emission Trading System: An Empirical Assessment," CERE Working Papers 2012:9, CERE - the Center for Environmental and Resource Economics.
    • Handle: RePEc:hhs:slucer:2012_009
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    File URL: http://www-sekon.slu.se/~gbost/CERE_WP2012-9.pdf
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    References listed on IDEAS

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    1. Cason, Timothy N & Gangadharan, Lata, 2003. "Transactions Costs in Tradable Permit Markets: An Experimental Study of Pollution Market Designs," Journal of Regulatory Economics, Springer, vol. 23(2), pages 145-165, March.
    2. R. H. Coase, 2013. "The Problem of Social Cost," Journal of Law and Economics, University of Chicago Press, vol. 56(4), pages 837-877.
    3. A. Denny Ellerman and Raphael Trotignon, 2009. "Cross Border Trading and Borrowing in the EU ETS," The Energy Journal, International Association for Energy Economics, vol. 0(Special I).
    4. Stavins Robert N., 1995. "Transaction Costs and Tradeable Permits," Journal of Environmental Economics and Management, Elsevier, vol. 29(2), pages 133-148, September.
    5. Lata Gangadharan, 2000. "Transaction Costs in Pollution Markets: An Empirical Study," Land Economics, University of Wisconsin Press, vol. 76(4), pages 601-614.
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    Cited by:

    1. Karpf, Andreas & Mandel, Antoine & Battiston, Stefano, 2018. "Price and network dynamics in the European carbon market," Journal of Economic Behavior & Organization, Elsevier, vol. 153(C), pages 103-122.
    2. Benoît Chèze, Julien Chevallier, Nicolas Berghmans, and Emilie Alberola, 2020. "On the CO2 Emissions Determinants During the EU ETS Phases I and II: A Plant-level Analysis Merging the EUTL and Platts Power Data," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 153-184.
    3. Aleksandar Zaklan, 2013. "Why Do Emitters Trade Carbon Permits?: Firm-Level Evidence from the European Emission Trading Scheme," Discussion Papers of DIW Berlin 1275, DIW Berlin, German Institute for Economic Research.
    4. Pablo Pintos & Pedro Linares, 2016. "Assessing the EU ETS with an Integrated Model," Working Papers 01-2016, Economics for Energy.
    5. Heindl, Peter & Lutz, Benjamin, 2012. "Carbon management: Evidence from case studies of German firms under the EU ETS," ZEW Discussion Papers 12-079, ZEW - Leibniz Centre for European Economic Research.
    6. Naegele, Helene, 2015. "Offset Credits in the EU Emissions Trading System : A Firm-Level Evaluation of Transaction Costs," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 112817, Verein für Socialpolitik / German Economic Association.
    7. Balietti, Anca Claudia, 2016. "Trader types and volatility of emission allowance prices. Evidence from EU ETS Phase I," Energy Policy, Elsevier, vol. 98(C), pages 607-620.

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    More about this item

    Keywords

    emission trading; Europe; firm level data; transaction costs;
    All these keywords.

    JEL classification:

    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects

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