EU ETS CO 2 emissions constraints and business performance: a quantile regression approach

Sara Segura, Luis Ferruz, Pilar Gargallo and Manuel Salvador

Applied Economics Letters, 2014, vol. 21, issue 2, 129-134

Abstract: The European Union Emissions Trading Scheme (EU ETS) is the first and largest international scheme for the trading of greenhouse gas emission allowances (European Union Allowances (EUA)). Considering that the global economic crisis is hurting corporate profits, analysing the implications of CO 2 emissions constraints for company business performance (BP) is a crucial task for both policymakers and companies. In this context, we analyse the relationship between surplus of allowances (SA) and BP in Spanish firms during the period 2005 to 2010. Using quantile regression techniques that provide a more complete picture of the relationship between the analysed variables, we draw two conclusions. First, an increase in company activity effectiveness led to a decrease in SA, indicating that activity effectiveness was not linked to good environmental performance, in terms of wasting the minimum number of allowances. Second, a decrease in SA, i.e., buying more or selling less EUAs is linked to an increase in company profitability. This provides evidence that the price of EUA was not sufficiently high to create a cost advantage for firms reducing their emissions. Based on our results, two policy measures are proposed.

Date: 2014
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DOI: 10.1080/13504851.2013.844316

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