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CERE - the Center for Environmental and Resource Economics CERE Working Papers, CERE - the Center for Environmental and Resource Economics

No 2015:2:
Carbon Pricing: Transaction Costs of Emissions Trading vs. Carbon Taxes

Jessica Coria () and Jurate Jaraite ()

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 Unionís 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 firmsí emissions, while they do in the case of the EU ETS. For firms of equivalent emissionsí 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-Š-vis downstream regulation by means of emission trading.

Keywords: Carbon dioxide emissions; Carbon tax; Emissions Trading; EU ETS; Firm-level data; Sweden; (follow links to similar papers)

JEL-Codes: D23; H23; Q52; Q58; (follow links to similar papers)

33 pages, February 23, 2015

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