Transaction Costs and Tradable Permits: Empirical Evidence from the EU Emissions Trading Scheme

• Main Authors: Peter Heindl, Karl Ludwig Brockmann, Kfw Bankengruppe, Vivien Lo, Andreas Löschel, Jan Schumacher
• Other Authors: The Pennsylvania State University CiteSeerX Archives
• Format: Text
• Language: English
• Published: 2012
• Subjects: Norway; Iceland; ren
• Online Access: http://citeseerx.ist.psu.edu/viewdoc/summary?doi=10.1.1.1083.3553; http://ftp.zew.de/pub/zew-docs/dp/dp12021.pdf

Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar. Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW. Non-Technical Summary In this paper, transaction costs of German firms, regulated under the EU emissions trading scheme (EU ETS) are examined empirically. Introduced in 2005, the EU ETS currently regulates carbon dioxide emissions of roughly 11,000 installations in the 27 EU member states, Norway, Liechtenstein and Iceland. Its aim is to reduce greenhouse gas (GHG) emissions in energy intensive industry branches and utility companies by 21 percent until 2020 compared to 2005. Transaction costs can be seen as costs for managing the EU ETS and carrying out necessary administrative tasks. As the data reveal, transaction costs depend on annual emissions and annual volumes of traded emissions allowances of firms in a nonlinear fashion, based on OLS and nonparametric estimation. This implies the presence of scale economies in the management of the EU ETS. Overall transaction costs increase for firms that have emissions levels ranging from zero to approximately one million tons of CO 2 emissions per year. Overall transaction costs decrease for firms with more than one million tons of CO 2 emissions (see In contrast to assumptions made by standard economic theory, marginal transaction costs also depend on annual emissions levels and annual trading volumes respectively. This implies that firms also take the costs of managing the EU ETS and costs for general administrative obligations into account when minimizing costs under the EU ETS. As a consequence, the firm's ...