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When the intensity of trading meets compliance requirements: An assessment for firms operating within the EU ETS

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  • Flori, Andrea
  • Scotti, Francesco

Abstract

We analyze the drivers of the volume of traded allowances and number of transactions carried out by firms within the European Union Emissions Trading System to study whether heterogeneous levels of trade participation relate to different carbon abatement performances. We analyze the entire Phases II and III of the program. We show that the difference between acquired and transferred allowances is strongly related to the level of carbon emissions over total assets, suggesting that the net amount of allowances traded by firms is mainly due to compliance surrendering requirements. Such a relationship is stronger when firms are net buyers than net sellers of allowances, possibly implying a violation of the Coase theorem. Furthermore, we investigate the factors influencing the intensity of allowances trading. We find that the number of performed transactions is mainly related to business characteristics relevant to the EU ETS functioning, such as the amount of owned installations or managed voluntary opened accounts. We test several alternative model specifications, including banked allowances and non-linearities, and find supporting evidence of our results.

Suggested Citation

  • Flori, Andrea & Scotti, Francesco, 2025. "When the intensity of trading meets compliance requirements: An assessment for firms operating within the EU ETS," Energy Economics, Elsevier, vol. 147(C).
    • Handle: RePEc:eee:eneeco:v:147:y:2025:i:c:s0140988325003664
    DOI: 10.1016/j.eneco.2025.108542
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    Keywords

    EU ETS; Environmental performance; Allowances; Trading intensity; Carbon abatement;
    All these keywords.

    JEL classification:

    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • F18 - International Economics - - Trade - - - Trade and Environment
    • 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
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models

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