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

Listed author(s):
  • 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)

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.

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File URL: https://gupea.ub.gu.se/handle/2077/38073
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Paper provided by University of Gothenburg, Department of Economics in its series Working Papers in Economics with number 609.

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Length: 25 pages
Date of creation: Jan 2015
Handle: RePEc:hhs:gunwpe:0609
Contact details of provider: Postal:
Department of Economics, School of Business, Economics and Law, University of Gothenburg, Box 640, SE 405 30 GÖTEBORG, Sweden

Phone: 031-773 10 00
Web page: http://www.handels.gu.se/econ/

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  1. William A. Brock & David S. Evans, 1985. "The Economics of Regulatory Tiering," RAND Journal of Economics, The RAND Corporation, vol. 16(3), pages 398-409, Autumn.
  2. Martin L. Weitzman, 1974. "Prices vs. Quantities," Review of Economic Studies, Oxford University Press, vol. 41(4), pages 477-491.
  3. 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.
  4. McCann, Laura & Colby, Bonnie & Easter, K. William & Kasterine, Alexander & Kuperan, K.V., 2005. "Transaction cost measurement for evaluating environmental policies," Ecological Economics, Elsevier, vol. 52(4), pages 527-542, March.
  5. Bonilla, Jorge & Coria, Jessica & Sterner, Thomas, 2012. "Synergies and Trade-offs between Climate and Local Air Pollution: Policies in Sweden," Working Papers in Economics 529, University of Gothenburg, Department of Economics.
  6. Pope, Jeff & Owen, Anthony D., 2009. "Emission trading schemes: potential revenue effects, compliance costs and overall tax policy issues," Energy Policy, Elsevier, vol. 37(11), pages 4595-4603, November.
  7. Evy Crals & Lode Vereeck, 2005. "Taxes, Tradable Rights and Transaction Costs," European Journal of Law and Economics, Springer, vol. 20(2), pages 199-223, September.
  8. McCann, Laura, 2013. "Transaction costs and environmental policy design," Ecological Economics, Elsevier, vol. 88(C), pages 253-262.
  9. Mitchell Polinsky, A. & Shavell, Steven, 1982. "Pigouvian taxation with administrative costs," Journal of Public Economics, Elsevier, vol. 19(3), pages 385-394, December.
  10. Coria, Jessica, 2009. "Environmental policy, fuel prices and the switching to natural gas in Santiago, Chile," Ecological Economics, Elsevier, vol. 68(11), pages 2877-2884, September.
  11. Heindl, Peter, 2012. "Transaction costs and tradable permits: Empirical evidence from the EU emissions trading scheme," ZEW Discussion Papers 12-021, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
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