A new CERE seminar was held on April 18th where Jurate Jaraite presented her and Andrius Kazukauskas' latest working paper on the firm-level trading behavior and transaction costs in the EU's Emission Trading System (ETS). Their research was focusing on the first phase (2005-2007) of the EU ETS and so far it's among one of the first studies that empirically explore the trading behavior of all ETS firms.
The authors, Jurate Jaraite and Andrius Kazukauskas, used a unique dataset in order to investigate: 1) the reasons of why some ETS firms with the surplus of tradable allowances do not sell them on the market; 2) how come ETS firms prefer to sell their allowances indirectly; and 3) in which ways do transaction costs affect decisions for firms.
By analyzing the firm-level data from the empirical perspective, they found that transaction costs, such as information costs and search costs, is one of the main reasons for ETS firms not willing to sell their unused emission permits, especially the small firms. This result is also consistent with the European Commission's concerns.
They are planning to extend this research by looking at the behavior of firms who bought some allowances as well as by considering the amount of permits traded.