Allocation or Skill? What is Driving Corporate Trading Performance in the EU ETS?

TY - JOUR

T1 - Allocation or Skill? What is Driving Corporate Trading Performance in the EU ETS?

AU - Lehmann, Sascha

AU - Schleich, Joachim

AU - Pinkse, Jonatan

PY - 2024/12/2

Y1 - 2024/12/2

N2 - This study empirically analyzes factors related to companies’ profits from trading emission allowances in the European Union Emissions Trading System (EU ETS) for the period from 2005 to 2017 by combining information on trading activities with company characteristics of more than 6,000 companies. The factors considered include net position (i.e., free allocation of allowances minus emissions), strategic skills (i.e., banking of allowances, timing of trading, transaction frequency, use of intermediaries), skill-related structural factors (i.e., number of installations, sector affiliation), market pressure, year, and region effects. The results from estimating a Panel Heckman Selection Model suggest that companies’ profits from buying and selling emission allowances are related to a company’s net position, banking of allowances, timing of trading, and the number of installations. The findings further indicate that companies choose the number of banked allowances efficiently, that is, they take into account the opportunity costs of selling these allowances on the market.

AB - This study empirically analyzes factors related to companies’ profits from trading emission allowances in the European Union Emissions Trading System (EU ETS) for the period from 2005 to 2017 by combining information on trading activities with company characteristics of more than 6,000 companies. The factors considered include net position (i.e., free allocation of allowances minus emissions), strategic skills (i.e., banking of allowances, timing of trading, transaction frequency, use of intermediaries), skill-related structural factors (i.e., number of installations, sector affiliation), market pressure, year, and region effects. The results from estimating a Panel Heckman Selection Model suggest that companies’ profits from buying and selling emission allowances are related to a company’s net position, banking of allowances, timing of trading, and the number of installations. The findings further indicate that companies choose the number of banked allowances efficiently, that is, they take into account the opportunity costs of selling these allowances on the market.

KW - climate policy

KW - emissions trading

KW - EU ETS

KW - banking

KW - transaction behavior

KW - trading performance

M3 - Article

SN - 0195-6574

VL - 45

SP - 203

EP - 221

JO - ENERGY JOURNAL

JF - ENERGY JOURNAL

IS - 6

ER -