Does the initial distribution of EU ETS allowances affect the production levels of French companies?

Pascale Combes Motel (), Aimé Okoko () and Sonia Schwartz
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Pascale Combes Motel: LEO - Laboratoire d'Économie d'Orleans [2022-...] - UO - Université d'Orléans - UT - Université de Tours - UCA - Université Clermont Auvergne, UCA - Université Clermont Auvergne
Aimé Okoko: LEO - Laboratoire d'Économie d'Orleans [2022-...] - UO - Université d'Orléans - UT - Université de Tours - UCA - Université Clermont Auvergne, UCA - Université Clermont Auvergne

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Abstract: This article analyses the relationship between the initial allocation of allowances under the European Union Emissions Trading Scheme (EU ETS) and production levels in the French manufacturing sector. To this end, we have created an original panel database comprising 376 firm-year observations from 2007 to 2018. This database links firms' financial characteristics to EU ETS data provided by the EU Transaction Log. Using a Translog function, we demonstrate that firms' production levels depend on the initial distribution of allowances. Heterogeneity analysis corroborates the main results for companies that received the fewest allowances and for those in a purchasing position. The main result is also applicable to companies operating on the domestic market and to those in the food, minerals and metallurgy sectors. Therefore, this study challenges Montgomery's (1972) findings, despite the fact that the initial distribution of quotas is exogenous and the ETS appears to operate competitively. Our results suggest that companies do not engage in static arbitrage, which calls into question the effectiveness of the ETS in achieving emission reductions at the lowest cost.

Keywords: Translog production function panel data ETS initial distribution carbon quotas C33; G32; Q58; Q53; D22; Translog production function; panel data; ETS; initial distribution; carbon quotas C33 (search for similar items in EconPapers)
Date: 2025-10-15
Note: View the original document on HAL open archive server: https://hal.science/hal-05315492v1
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Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:hal-05315492

DOI: 10.5281/zenodo.17356743

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