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Effects of European emission unit allowance auctions on corporate profitability

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  • Carratù, Maria
  • Chiarini, Bruno
  • Piselli, Paolo

Abstract

During Phase 3 of the EU Emission Trading System (ETS), to remedy the so-called windfall profits obtained by companies that benefited from the free allocation of emission permits, the EU introduced an auction-based method for the allocation of carbon emission allowances. We estimate the effect on firms' profits from participating in auctions during Phase 3 of the EU ETS using a propensity score matching approach. The work shows that the introduction of the new market mechanism for allocating carbon emission allowances has no significant effect on corporate profits, whatever the measure of profitability used. From a policy standpoint, this result seems to suggest that this new allocation mechanism might fail to improve the incentives for companies to increase their production cost efficiency or to invest in breakthrough technologies that reduce CO2. The rather flat auction price trend seems to support this conclusion.

Suggested Citation

  • Carratù, Maria & Chiarini, Bruno & Piselli, Paolo, 2020. "Effects of European emission unit allowance auctions on corporate profitability," Energy Policy, Elsevier, vol. 144(C).
  • Handle: RePEc:eee:enepol:v:144:y:2020:i:c:s0301421520303244
    DOI: 10.1016/j.enpol.2020.111584
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    References listed on IDEAS

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    Keywords

    Emission unit allowances; Auction policy; ETS; Propensity score matching;

    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
    • D0 - Microeconomics - - General
    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General

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