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Cross Border Trading and Borrowing in the EU ETS

Cross Border Trading and Borrowing in the EU ETS A. Denny Ellerman* and Raphael Trotignon** This paper exploits a little used data resource within the central registry of the European Union�s Emissions Trading System (EU ETS) to analyze cross border trading and inter-year borrowing during the first trading period (2005- 2007). Cross-border flows were small in the aggregate but remarkably frequent in matching allowance deficits and surpluses at the installation level throughout the EU. These data also indicate that a novel feature of the EU ETS�the ability to borrow allowances from the forward allocation to satisfy current compliance requirements�was also used. These data provide evidence that the precondition of efficient abatement in a cap-and-trade system�widespread use of trading opportunities�was present in the first period of the EU ETS.

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Energy Specializations: Energy and the Environment – Climate Change and Greenhouse Gases; Energy and the Environment – Policy and Regulation

JEL Codes:
Q54 - Climate; Natural Disasters and Their Management; Global Warming
E60 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General

Keywords: EU ETS, Cross-border trade, Borrowing, CO2 emissions

DOI: 10.5547/ISSN0195-6574-EJ-Vol30-NoSI2-4

Published in Volume 30, Special Issue #2 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.