Trading Behavior in the EU Emissions Trading Scheme
25 Pages Posted: 4 Dec 2013 Last revised: 24 Mar 2014
Date Written: March 21, 2014
Based on interviews with 429 manufacturing firms in six European countries, this study explores the rationality of trading behavior in the European Union Emissions Trading Scheme (EU ETS). We find that banking from one year to the next is used by most firms. Equally, a large majority of installations that are part of larger firms, manage permits within their own installation despite having the option to pool within firms. About 30% of firms do not appreciate the market created by the EU ETS; i.e. they do not consider carbon allowances as a financial asset that could provide profit opportunities. Also, the majority of EU ETS participants in our sample does not trade on the EU allowance market. Finally, we show that some firms do not make their allowances available despite possessing an excess supply: on average firms start to sell only if they have an excess supply of around 5,000 allowances. However, the total number of excess allowances held by firms below the trading threshold is rather small, at less than 10% of all excess allowances.
Keywords: Emissions Trading, EU, Firm behavior, Survey data, Climate Policy
JEL Classification: Q41, Q48, Q54, D21
Suggested Citation: Suggested Citation