Abstract
This study(PDF 881,1 KB) analyses factors related to allowance-trading behaviour for the first ten years of
the existence of the European Union Emissions Trading System (EU ETS). Our empirical
analysis employs a dataset that combines information on trading activities for more than
6000 companies with company characteristics. Indicators of trading activity include the
volume and the number of transactions as well as the usage of intermediaries and of derivatives
markets. For 2005–2014 and for the individual trading periods, we find that trading
behaviour is related to the size of a company, its net position (the difference between free
allocations and verified emissions), its sector affiliation, productivity, and location. We also
find evidence that trading-related transaction costs affect trading activity in the EU ETS in
all trading periods. Our results further suggest that net buyers (companies whose verified
emissions exceed free allocations in a given year) are more likely to participate in emissions
trading and to trade at higher volumes than net sellers are. We explain this asymmetry
in behaviour—which might lead to a violation of Coase’s independence property—by
potential asymmetries in the actual or perceived opportunity costs of holding allowances
between net sellers and net buyers.

Keywords: Climate policy · Emissions trading · EU ETS · Transaction behaviour ·
Transaction costs