Scandinavian Working Papers in Economics

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

No 2012:9: Firm Trading Behaviour and Transaction Costs in the European Union’s Emission Trading System: An Empirical Assessment

Jurate Jaraite () and Andrius Kažukauskas ()
Additional contact information
Jurate Jaraite: CERE, Centre for Environmental and Resource Economics, Postal: Umeå University, S-901 87 Umeå, Sweden
Andrius Kažukauskas: CERE, Centre for Environmental and Resource Economics, Postal: Umeå University, S-901 87 Umeå, Sweden

Abstract: To the best of our knowledge, this study is one of the first to empirically analyse the trading behaviour of all ETS firms during the first phase of the EU’s Emissions Trading System. We use a unique dataset which allows investigating the importance of permit trading transaction costs, such as information costs and search costs. This paper shows that transaction costs can play an important role in the initial years of the programme. These costs are significant in explaining why a number of ETS firms did not sell their unused allowances on the market. This study also supports the concerns that transaction costs might be excessive for smaller participants.

Keywords: emission trading; Europe; firm level data; transaction costs

JEL-codes: Q52

16 pages, March 1, 2012

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