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Does the initial distribution of EU ETS allowances affect the production levels of French companies?

Author

Listed:
  • Pascale Combes Motel

    (LEO - Laboratoire d'Économie d'Orleans [2022-...] - UO - Université d'Orléans - UT - Université de Tours - UCA - Université Clermont Auvergne, UCA - Université Clermont Auvergne)

  • Aimé Okoko

    (LEO - Laboratoire d'Économie d'Orleans [2022-...] - UO - Université d'Orléans - UT - Université de Tours - UCA - Université Clermont Auvergne, UCA - Université Clermont Auvergne)

  • Sonia Schwartz

    (LEO - Laboratoire d'Économie d'Orleans [2022-...] - UO - Université d'Orléans - UT - Université de Tours - UCA - Université Clermont Auvergne, UCA - Université Clermont Auvergne)

Abstract

This article analyses the relationship between the initial allocation of allowances under the European Union Emissions Trading Scheme (EU ETS) and production levels in the French manufacturing sector. To this end, we have created an original panel database comprising 376 firm-year observations from 2007 to 2018. This database links firms' financial characteristics to EU ETS data provided by the EU Transaction Log. Using a Translog function, we demonstrate that firms' production levels depend on the initial distribution of allowances. Heterogeneity analysis corroborates the main results for companies that received the fewest allowances and for those in a purchasing position. The main result is also applicable to companies operating on the domestic market and to those in the food, minerals and metallurgy sectors. Therefore, this study challenges Montgomery's (1972) findings, despite the fact that the initial distribution of quotas is exogenous and the ETS appears to operate competitively. Our results suggest that companies do not engage in static arbitrage, which calls into question the effectiveness of the ETS in achieving emission reductions at the lowest cost.

Suggested Citation

  • Pascale Combes Motel & Aimé Okoko & Sonia Schwartz, 2025. "Does the initial distribution of EU ETS allowances affect the production levels of French companies?," Working Papers hal-05315492, HAL.
    • Handle: RePEc:hal:wpaper:hal-05315492
    DOI: 10.5281/zenodo.17356743
    Note: View the original document on HAL open archive server: https://hal.science/hal-05315492v1
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    Keywords

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    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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