Economic Consequences of Emission Trading Schemes: Evidence from the European Power Sector

Posted: 15 Jan 2008 Last revised: 3 Dec 2009

See all articles by Stefan Veith

Stefan Veith

University of Bremen - Faculty of Business Studies and Economics

Joerg R. Werner

Frankfurt School of Finance & Management gemeinnützige GmbH - Accounting Department

Jochen Zimmermann

University of Bremen - Faculty of Business Studies and Economics; University of Bremen - Chair of Accounting and Control

Date Written: January 15, 2008

Abstract

The European emission trading scheme regulates the pollution of carbon dioxide for more than 11,000 facilities. Nevertheless quickly doubts arose about the efficiency of allocation methods and of the trade in emission allowances. Hence this paper tests for the hypothesis of economic insignificance with regard to the biggest of affected industries, the electricity generating sector. Employing a multifactor market model it is shown that returns on common stock in this industry are positively correlated with rising prices for emission allowances. Investors estimate that the firms are not only able to pass on a material share of the regulatory burden to customers but even achieve to generate windfall profits by overcompensating for the costs. As opposed to this prediction for the whole market, an adverse exposition could be found for utilities that mainly generate electricity from fossil fuels.

Keywords: Emission trade, Emission rights, CAPM, Electricity industry

JEL Classification: G12, K23

Suggested Citation

Veith, Stefan and Werner, Jörg Richard and Zimmermann, Jochen, Economic Consequences of Emission Trading Schemes: Evidence from the European Power Sector (January 15, 2008). Energy Economics, Vol. 31, No. 4, pp. 605-613, 2009. Available at SSRN: https://ssrn.com/abstract=1083984

Stefan Veith (Contact Author)

University of Bremen - Faculty of Business Studies and Economics ( email )

Universitaetsallee GW I
Bremen, D-28334
Germany
+49 421 218-9122 (Phone)
+49 421 218-2869 (Fax)

HOME PAGE: http://www.controlling.uni-bremen.de

Jörg Richard Werner

Frankfurt School of Finance & Management gemeinnützige GmbH - Accounting Department ( email )

Adickesallee 32-34
Frankfurt, 60322
Germany

Jochen Zimmermann

University of Bremen - Faculty of Business Studies and Economics ( email )

Hochschulring 4
Germany
+49 421 218 9121 (Phone)

University of Bremen - Chair of Accounting and Control ( email )

Universitaetsallee GW I
Bremen, D-28334
Germany
+49 421 218-9119 (Phone)

HOME PAGE: http://www.controlling.uni-bremen.de

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