EU Emissions Trading by Energy Firms

44 Pages Posted: 25 Oct 2014

See all articles by Thijs Jong

Thijs Jong

affiliation not provided to SSRN

Alexander C.M. Zeitlberger

zeb/rolfes.schierenbeck.associates

Multiple version iconThere are 2 versions of this paper

Date Written: October 2014

Abstract

This paper aims to identify what determines the allowance transactions of energy firms on the European carbon market (EU ETS). We develop measures of their 'autarky' regarding the carbon market, their allowance hedging, and the allowance holdings which ensure optimal EU ETS compliance. Although under-allocated over Phase I, energy firms held more allowances than needed. By selling allowances, only the non-autarkic firms followed their optimal compliance holdings and, hence, actually behaved autarkical. Autarkic firms, conversely, purchased more allowances than they needed. Moreover, and unlike non-autarkic firms, their allowance trades were responsive to energy demand and indicative of carbon hedging. Finally, all energy firms utilized the carbon market's abatement potential, which affirms that the EU ETS leads to relative cost savings. As especially autarkic energy firms utilized this potential, and may have reaped additional savings from their active hedging, they behaved least autarkical regarding the carbon market.

Keywords: Emissions trading; energy market; EU Transaction Log; firm-level data; allowance purchases and sales; carbon hedging; panel data econometrics

JEL Classification: D22; H23; L94; Q41; Q52

Suggested Citation

Jong, Thijs and Zeitlberger, Alexander C.M., EU Emissions Trading by Energy Firms (October 2014). Robert Schuman Centre for Advanced Studies Research Paper No. RSCAS 2014/99, Available at SSRN: https://ssrn.com/abstract=2514391 or http://dx.doi.org/10.2139/ssrn.2514391

Thijs Jong (Contact Author)

affiliation not provided to SSRN

Alexander C.M. Zeitlberger

zeb/rolfes.schierenbeck.associates ( email )

Germany

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