Firm Trading Behaviour and Transaction Costs in the European Union’s Emission Trading System: An Empirical Assessment

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.emission trading; Europe; firm level data; transaction costs

Efficiency, Productivity and Environmental Policy: A Case Study of Power Generation in the EU

This study uses the EU public power generating sector as a case study to investigate the environmental efficiency and productivity enhancing performance of the EU ETS in its pilot phase. Using Data Envelopment Analysis methods, we measures the environmental efficiency and the productivity growth registered in public power generation across the EU over the 1996-2007 period. In the second stage of our analysis we attempt to explain changes in productivity and efficiency over time using state-of-the-art econometric techniques. Our analysis suggests two conclusions: on the one hand carbon pricing led to an increase in environmental efficiency and to a shift outwards of the technological frontier; on the other hand, the overly generous allocation of emission permits had a negative impact on both measures. These results are shown to be quite robust to changes in controls and specifications.Emissions Trading; EU ETS; Environmental Efficiency; Productivity GrowthM; Data Envelopment Analysis

The effect of mandatory agro-environmental policy on farm environmental performance

The EU farmers are subject to mandatory cross compliance measures requiring them to meet environmental conditions to be eligible for public support. These obligations reinforce incentives for the farmers to change their behaviour towards the environment. We apply quasi-experimental methods to measure the causal relationship between cross-compliance and farm environmental performance. We find that cross compliance reduced farm fertiliser and pesticide expenditure. This result also holds for farmers who participated in other voluntary agro-environmental schemes. However, the results do not support our expectations that farmers who relied on larger shares of public payments had a stronger motivation to improve their environmental performance.agriculture; Common Agriculture Policy; cross-compliance; environment; EU; farm

Efficiency, Productivity and Environmental Policy: A Case Study of Power Generation in the EU

This study uses the EU public power generating sector as a case study to investigate the environmental efficiency and productivity enhancing performance of the European Union’s CO2 Emissions Trading Scheme (EU ETS) in its pilot phase. Using Data Envelopment Analysis methods, we measure the environmental efficiency and the productivity growth registered in public power generation across the EU over the 1996-2007 period. In the second stage of our analysis we attempt to explain changes in productivity and efficiency over time using state-of-the-art econometric techniques. Our analysis suggests two conclusions: on the one hand carbon pricing led to an increase in environmental efficiency and to a shift outwards of the technological frontier; on the other hand, the overly generous allocation of emission permits had a negative impact on both measures. These results are shown to be robust to changes in controls and specifications.Emissions Trading, EU ETS, Environmental Efficiency, Productivity Growth, Data Envelopment Analysis

Determinants of Environmental Expenditure and Investment: Evidence from Sweden

This paper provides new evidence on the determinants of environmental expenditure and investment. Also, by employing the Heckman selection models, we study how environmental expenditure and investment by Swedish industrial firms responded to the national and international policies directed to mitigate air pollution during the period 1999 through 2008. We find that firms that use carbon intensive fuels such as oil and gas are more likely to spend to and invest in the environment. Larger, more profitable and more energy intensive firms are more likely to incur environmental expenditure/investment. Overall, an important finding of our econometric analysis is that environmental regulation both on the national and international levels are highly relevant motivations for environmental expenditure and investment.environmental expenditure and investment; environmental policy; EU ETS; panel data

Did the EU ETS make a difference? An empirical assessment using Lithuanian firm-level data

We use a panel dataset of about 5,000 Lithuanian firms between 2003 and 2010, to assess the impact of the EU ETS on the environmental and economic performance of participating firms. Using a matching methodology, we are able to estimate the causal impact of EU ETS participation on CO2 emissions, CO2 intensity, investment behaviour and profitability of participating firms. Our results show that ETS participation did not lead to a reduction in CO2 emissions, while we identify a slight improvement in CO2 intensity. ETS participants are shown to have retired part of their less efficient capital stock, and to have made modest additional investments from 2010. We also show that the EU ETS did not represent a drag on the profitability of participating firms

Carbon pricing : transaction costs of emissions trading vs. carbon taxes

In this paper we empirically compare the transaction costs from monitoring, reporting and verification (MRV) of two environmental regulations directed to cost-efficiently reduce greenhouse gas emissions: a carbon dioxide (CO2) tax and a tradable emissions system. We do this in the case of Sweden, where a set of firms are covered by both types of regulations, i.e., the Swedish CO2 tax and the European Union’s Emissions Trading System (EU ETS). This provides us with an excellent case study as it allows us to disentangle the costs of each regulation from other firm-specific variables that might affect the overall cost of MRV procedures. Our results indicate that the MRV costs of CO2 taxation do not depend on firms’ emissions, while they do in the case of the EU ETS. For firms of equivalent emissions’ size, the MRV costs are lower for CO2 taxation than for the EU ETS, which confirms the general view that regulating emissions upstream by means of a CO2 tax yields lower transaction costs vis-á-vis downstream regulation by means of emission trading

Transaction Costs of Upstream Versus Downstream Pricing of CO2 Emissions

To the best of our knowledge, this is the first paper comparing empirically the transaction costs of the monitoring, reporting and verification (MRV) required by two environmental regulations aimed to cost-efficiently reduce greenhouse gas emissions: a carbon dioxide (CO2) tax and an emissions trading system. We do this in the case of Sweden, where a set of firms are covered by both types of regulations—the Swedish CO2 tax and the European Union’s Emissions Trading System (EU ETS). Our results indicate that there is a significant degree of heterogeneity in the transaction costs of the firms in our sample. Moreover, for some of the firms, the transaction costs are high when compared with the actual cost of the CO2 tax and the price of the EU ETS. Furthermore, we find that the MRV costs are lower for CO2 taxation than for the EU ETS, which confirms the general view that regulating emissions upstream via a CO2 tax yields lower transaction costs vis-á-vis downstream regulation via emissions trading

Carbon pricing : transaction costs of emissions trading vs. carbon taxes

In this paper we empirically compare the transaction costs from monitoring, reporting and verification (MRV) of two environmental regulations directed to cost-efficiently reduce greenhouse gas emissions: a carbon dioxide (CO2) tax and a tradable emissions system. We do this in the case of Sweden, where a set of firms are covered by both types of regulations, i.e., the Swedish CO2 tax and the European Union’s Emissions Trading System (EU ETS). This provides us with an excellent case study as it allows us to disentangle the costs of each regulation from other firm-specific variables that might affect the overall cost of MRV procedures. Our results indicate that the MRV costs of CO2 taxation do not depend on firms’ emissions, while they do in the case of the EU ETS. For firms of equivalent emissions’ size, the MRV costs are lower for CO2 taxation than for the EU ETS, which confirms the general view that regulating emissions upstream by means of a CO2 tax yields lower transaction costs vis-á-vis downstream regulation by means of emission trading