Download this Paper Open PDF in Browser

Trading Behavior in the EU Emissions Trading Scheme

25 Pages Posted: 4 Dec 2013 Last revised: 24 Mar 2014

Ralf Martin

London School of Economics & Political Science (LSE) - Department of Economics; Imperial College Business School

Mirabelle Muûls

Imperial College Business School and Grantham Institute - Climate Change and the environment; London School of Economics - Centre for Economic Performance

Ulrich J. Wagner

Department of Economics, University of Mannheim

Date Written: March 21, 2014

Abstract

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

Martin, Ralf and Muûls, Mirabelle and Wagner, Ulrich J., Trading Behavior in the EU Emissions Trading Scheme (March 21, 2014). Available at SSRN: https://ssrn.com/abstract=2362810 or http://dx.doi.org/10.2139/ssrn.2362810

Ralf Martin

London School of Economics & Political Science (LSE) - Department of Economics ( email )

Houghton Street
London WC2A 2AE
United Kingdom

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

Mirabelle Muûls

Imperial College Business School and Grantham Institute - Climate Change and the environment ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

London School of Economics - Centre for Economic Performance ( email )

Houghton Street
London WC2A 2AE
United Kingdom

Ulrich Wagner (Contact Author)

Department of Economics, University of Mannheim ( email )

L7, 3-5
Mannheim, 68131
Germany
+49 621 181 1420 (Phone)

HOME PAGE: http://wagner.vwl.uni-mannheim.de

Paper statistics

Downloads
122
Rank
199,085
Abstract Views
656