Why Do Emitters Trade Carbon Permits?: Firm-Level Evidence from the European Emission Trading Scheme
The creation of the EU's Emission Trading Scheme (EU ETS) has turned the right to emit CO2 into a positively priced intermediate good for the affected firms. Firms thus face the decision whether to source compliance with the EU ETS within their boundaries or to acquire it through the permit trade. However, a combination of internal abatement, free permit allocation and exibility to shift the use of their allocation across time creates opportunities to achieve compliance with the EU ETS without entering the permit trade. This paper aims to identify firm-level determinants of participation in and the extent of the permit trade while recognizing the possibility of zero trade flows leading to selection bias if unaccounted-for. We construct a firm-level dataset incorporating transaction-level information from both EU ETS operator and person holding accounts, thus representing the entire system-wide permit trade by CO2 emitters. We cover the supply and demand sides of the permit trade, both inter- firm and intra-firm, and account for a wide set of firm-level characteristics using firms' balance sheet information. A detailed descriptive analysis documents salient features of the firm-level permit trade. We then jointly model firms' participation and amount decisions while allowing for possible self-selection into trading. Our results suggest that participation in the permit trade is driven by a combination of firm-specific factors existing independently of the EU ETS, such as size, sector and ownership structure, and market-specific characteristics resulting from the firms' inclusion in the EU ETS, such as the value of the firms' free permit endowment and their relative allowance position. We find that amounts traded are mostly driven by market-specific factors. In contrast to the literature on the firm-level determinants of the general goods trade we do not find self-selection into trading.
|Date of creation:||2013|
|Date of revision:|
|Contact details of provider:|| Postal: Mohrenstraße 58, D-10117 Berlin|
Web page: http://www.diw.de/en
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Pol Antras & Elhanan Helpman, 2003.
Harvard Institute of Economic Research Working Papers
2005, Harvard - Institute of Economic Research.
- Antràs, Pol & Helpman, Elhanan, 2004. "Global Sourcing," CEPR Discussion Papers 4170, C.E.P.R. Discussion Papers.
- Antras, Pol & Helpman, Elhanan, 2004. "Global Sourcing," Scholarly Articles 3196327, Harvard University Department of Economics.
- Pol Antràs & Elhanan Helpman, 2003. "Global Sourcing," NBER Working Papers 10082, National Bureau of Economic Research, Inc.
- Ellerman,A. Denny & Convery,Frank J. & de Perthuis,Christian, 2010. "Pricing Carbon," Cambridge Books, Cambridge University Press, number 9780521196475, 1.
- Andrew B. Bernard & Stephen Redding, 2010.
"Intra-firm trade and product contractibility (Long Version),"
LSE Research Online Documents on Economics
48899, London School of Economics and Political Science, LSE Library.
- Andrew B. Bernard & J. Bradford Jensen & Stephen Redding & Peter K. Schott, 2010. "Intra-Firm Trade and Product Contractibility (Long Version)," CEP Discussion Papers dp0978, Centre for Economic Performance, LSE.
- Andrew B. Bernard & J. Bradford Jensen & Stephen J. Redding & Peter K. Schott, 2010. "Intra-firm Trade and Product Contractibility (Long Version)," NBER Working Papers 15881, National Bureau of Economic Research, Inc.
- Richard Baldwin & James Harrigan, 2007.
"Zeros, Quality and Space: Trade Theory and Trade Evidence,"
NBER Working Papers
13214, National Bureau of Economic Research, Inc.
- Richard Baldwin & James Harrigan, 2011. "Zeros, Quality, and Space: Trade Theory and Trade Evidence," American Economic Journal: Microeconomics, American Economic Association, vol. 3(2), pages 60-88, May.
- Baldwin, Richard & Harrigan, James, 2007. "Zeros, Quality and Space: Trade Theory and Trade Evidence," CEPR Discussion Papers 6368, C.E.P.R. Discussion Papers.
- Radner, Roy, 1996. "Bounded Rationality, Indeterminacy, and the Theory of the Firm," Economic Journal, Royal Economic Society, vol. 106(438), pages 1360-73, September.
- Beat Hintermann, 2009.
"Allowance Price Drivers in the First Phase of the EU ETS,"
CEPE Working paper series
09-63, CEPE Center for Energy Policy and Economics, ETH Zurich.
- Hintermann, Beat, 2010. "Allowance price drivers in the first phase of the EU ETS," Journal of Environmental Economics and Management, Elsevier, vol. 59(1), pages 43-56, January.
- Andrew B. Bernard & J. Bradford Jensen & Stephen Redding & Peter K. Schott, 2010.
"Intrafirm trade and product contractibility,"
LSE Research Online Documents on Economics
28616, London School of Economics and Political Science, LSE Library.
- Andrew B. Bernard & J. Bradford Jensen & Stephen J. Redding & Peter K. Schott, 2013. "Intra-Firm Trade And Product Contractibility," Working Papers 13-12, Center for Economic Studies, U.S. Census Bureau.
- Andrew B. Bernard & J. Bradford Jensen & Stephen J. Redding & Peter K. Schott, 2010. "Intra-Firm Trade and Product Contractibility," Working Paper Series WP10-3, Peterson Institute for International Economics.
- Bernard, Andrew B. & Jensen, J Bradford & Redding, Stephen J. & Schott, Peter K., 2010. "Intra-firm Trade and Product Contractibility," CEPR Discussion Papers 7927, C.E.P.R. Discussion Papers.
- Jūratė Jaraitė & Frank Convery & Corrado Di Maria, 2010. "Transaction costs for firms in the EU ETS: lessons from Ireland," Climate Policy, Taylor & Francis Journals, vol. 10(2), pages 190-215, March.
- Simon, Herbert A, 1979.
"Rational Decision Making in Business Organizations,"
American Economic Review,
American Economic Association, vol. 69(4), pages 493-513, September.
- Simon, Herbert A., 1978. "Rational Decision-Making in Business Organizations," Nobel Prize in Economics documents 1978-1, Nobel Prize Committee.
- David Greenaway & Richard Kneller, 2007. "Firm heterogeneity, exporting and foreign direct investment," Economic Journal, Royal Economic Society, vol. 117(517), pages F134-F161, 02.
- 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.
- Roberts, Mark J & Tybout, James R, 1997. "The Decision to Export in Colombia: An Empirical Model of Entry with Sunk Costs," American Economic Review, American Economic Association, vol. 87(4), pages 545-64, September.
- repec:hrv:faseco:4784029 is not listed on IDEAS
- R. Trotignon & A. Denny Ellerman, 2008. "Compliance Behavior in THE EU-ETS: Cross Border Trading, Banking and Borrowing," Working Papers 0812, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
- Georg Zachmann & Anta Ndoye & Jan Abrell, 2011.
"Assessing the impact of the EU ETS using firm level data,"
- Jan Abrell & Anta Ndoye Faye & Georg Zachmann, 2011. "Assessing the impact of the EU ETS using firm level data," Working Papers of BETA 2011-15, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
- Stavins Robert N., 1995. "Transaction Costs and Tradeable Permits," Journal of Environmental Economics and Management, Elsevier, vol. 29(2), pages 133-148, September.
- Bredin, Don & Muckley, Cal, 2011. "An emerging equilibrium in the EU emissions trading scheme," Energy Economics, Elsevier, vol. 33(2), pages 353-362, March.
- Harrison Fell, 2010. "EU-ETS and Nordic Electricity: A CVAR Analysis," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 1-26.
- Benz, Eva & Trück, Stefan, 2009. "Modeling the price dynamics of CO2 emission allowances," Energy Economics, Elsevier, vol. 31(1), pages 4-15, January.
When requesting a correction, please mention this item's handle: RePEc:diw:diwwpp:dp1275. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Bibliothek)
If references are entirely missing, you can add them using this form.