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Offset Credits in the EU ETS: A Quantile Estimation of Firm-Level Transaction Costs

Helene Naegele ()
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Helene Naegele: Competition and Consumers, DIW Berlin

Environmental & Resource Economics, 2018, vol. 70, issue 1, 77-106

Abstract: Abstract International carbon offset certificates were cheaper than European Union Allowances, although they were substitutes within the EU Emissions Trading System (EU ETS). Thus, firms had a strong incentive to use offset certificates. However, a considerable number of firms did not exhaust their offset quota and, by doing so, seemingly forwent profits. While most literature on emissions trading evaluates the efficiency of regulation in a frictionless world, in practice firms incur costs when complying with regulation. In order to assess the relevance of trade-related fixed transaction costs, this study examines the use of international offset credits in the EU ETS. It establishes a model of firm decision under fixed (quantity-invariant) entry costs and estimates the size of such costs rationalizing firm behavior using semi-parametric binary quantile regressions. Comparing binary quantile results with probit estimates shows that high average transaction costs result from a strongly skewed underlying distribution. For most firms, the bulk of transaction costs stems from certificate trading in general, rather than additional participation in offset trading.

Keywords: Binary quantile estimation; CDM; Climate change; Carbon emissions trading; Entry costs; EU ETS; Offset certificates; Semi-parametric estimation; Transaction costs (search for similar items in EconPapers)
JEL-codes: C25 D23 H23 Q58 (search for similar items in EconPapers)
Date: 2018
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