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Carbon Pricing: Transaction Costs of Emissions Trading vs. Carbon Taxes

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  • Coria, Jessica

    (Department of Economics, School of Business, Economics and Law, Göteborg University)

  • Jaraite, Jurate

    (Centre for Environmental and Resource Economics, School of Business and Economics, Umeå University, Umeå, Sweden)

Abstract

In this paper we empirically compare the transaction costs from monitoring, reporting and verification (MRV) of two environmental regulations directed to cost-efficiently reduce greenhouse gas emissions: a carbon dioxide (CO2) tax and a tradable emissions system. We do this in the case of Sweden, where a set of firms are covered by both types of regulations, i.e., the Swedish CO2 tax and the European Union’s Emissions Trading System (EU ETS). This provides us with an excellent case study as it allows us to disentangle the costs of each regulation from other firm-specific variables that might affect the overall cost of MRV procedures. Our results indicate that the MRV costs of CO2 taxation do not depend on firms’ emissions, while they do in the case of the EU ETS. For firms of equivalent emissions’ size, the MRV costs are lower for CO2 taxation than for the EU ETS, which confirms the general view that regulating emissions upstream by means of a CO2 tax yields lower transaction costs vis-á-vis downstream regulation by means of emission trading.

Suggested Citation

  • Coria, Jessica & Jaraite, Jurate, 2015. "Carbon Pricing: Transaction Costs of Emissions Trading vs. Carbon Taxes," Working Papers in Economics 609, University of Gothenburg, Department of Economics.
    • Handle: RePEc:hhs:gunwpe:0609
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    References listed on IDEAS

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    Cited by:

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    2. De Cara, Stéphane & Henry, Loïc & Jayet, Pierre-Alain, 2018. "Optimal coverage of an emission tax in the presence of monitoring, reporting, and verification costs," Journal of Environmental Economics and Management, Elsevier, vol. 89(C), pages 71-93.
    3. Abdul-Salam, Yakubu & Kemp, Alex & Phimister, Euan, 2022. "Energy transition in the UKCS – Modelling the effects of carbon emission charges on upstream petroleum operations," Energy Economics, Elsevier, vol. 108(C).
    4. Ilya Stepanov & Johan Albrecht, 2019. "Decarbonization And Energy Policy Instruments In The Eu: Does Carbon Pricing Prevail?," HSE Working papers WP BRP 211/EC/2019, National Research University Higher School of Economics.
    5. Kedong Yin & Lu Liu & Chong Huang & Yuqing Xiao, 2023. "Can the transfer of polluting industries achieve a win–win situation for both the economy and the environment? Research based on the perspective of environmental regulation," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 25(8), pages 8903-8928, August.
    6. John F. Raffensperger, 2020. "A price on warming with a supply chain directed market," Papers 2003.05114, arXiv.org, revised Mar 2021.
    7. Phan, Thu-Ha Dang & Brouwer, Roy & Davidson, Marc David, 2017. "A Global Survey and Review of the Determinants of Transaction Costs of Forestry Carbon Projects," Ecological Economics, Elsevier, vol. 133(C), pages 1-10.

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    More about this item

    Keywords

    Carbon dioxide emissions; Carbon tax; Emissions Trading; EU ETS; Firm-level data; Sweden;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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