Using a rather unexplored dataset on tradable permit transaction, the study found that;
  • Transaction costs played an important role in the initial years of the EU ETS and were significant in explaining why some ETS firms did not participate in the European emission trading market and chose to trade allowances individually via third parties.
  • It was also evident that the importance of transaction costs was declining over time.
  • The study also found evidence that supports the concerns raised by the European Commission that transaction costs might be excessive for smaller participants.
POWER_conferenceThe aim of the study was to empirically investigate trading in the emissions permits in the EU ETS, with a focus on the presence of trading transactions costs in the first phase (2005-2007) of the EU ETS. The EU ETS is the main climate policy tool in combating climate change, particularly in the reduction of industrial greenhouse gas emissions cost-effectively. In particular, they wanted to address the following questions: What ETS firms decide to trade, and how do they differ from non-traders? Further, how transaction costs affect trading decisions of ETS firms? Are transaction costs significant and do they decrease over time due to learning-by-doing processes?

Photo by: James George from Envirobeat

Read more about the conference: University of California, Berkeley

Read the CERE working paper: "Firm Trading Behaviour and Transaction Costs in the European Union's Emission Trading System (EU ETS): An Empirical Assessment" authored by Jūrate Jaraitė and Andrius Kažukauskas.