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The Role of Banks in EU Emissions Trading

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  • Johanna Cludius and Regina Betz

Abstract

This paper is an empirical investigation of the role of banks in the EU Emissions Trading System (EU ETS). This topic is of particular interest considering that banks are responsible for a large and increasing share of overall transactions under the EU ETS and that they provide regulated companies with services related to emissions trading. Using both semi-structured interviews as well as descriptive and regression analysis, we investigated the different roles banks play in EU emissions trading and whether their importance as trading partners differs in relation to different types of regulated companies. Our regressions based on data from the first trading period of the EU ETS show that large companies with trading experience are more likely to choose a trading strategy involving interaction with a range of financial intermediaries, in particular banks or exchanges, than smaller, less professionalized companies, which tend to follow a trading strategy involving brokers (in particular for selling allowances). These findings can help policymakers decide on the level of involvement of non-regulated companies in their systems, which is currently allowed to varying degrees under different ETS. We recommend that this decision should be closely linked to provisions of market oversight and the level of control over the different types of financial players active in emissions trading.

Suggested Citation

  • Johanna Cludius and Regina Betz, 2020. "The Role of Banks in EU Emissions Trading," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 275-300.
    • Handle: RePEc:aen:journl:ej41-2-betz
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    Cited by:

    1. Baudry, Marc & Faure, Anouk & Quemin, Simon, 2021. "Emissions trading with transaction costs," Journal of Environmental Economics and Management, Elsevier, vol. 108(C).
    2. Jiqiang Wang & Yinpeng Liu & Ying Fan & Jianfeng Guo, 2020. "The Impact of Industry on European Union Emissions Trading Market—From Network Perspective," Energies, MDPI, vol. 13(21), pages 1-16, October.
    3. Thomas M. Treptow, 2024. "CO2 investment risk analysis," Journal of Asset Management, Palgrave Macmillan, vol. 25(1), pages 19-30, February.
    4. Estelle Cantillon & Aurélie Slechten, 2023. "Market Design for the Environment," NBER Chapters, in: New Directions in Market Design, National Bureau of Economic Research, Inc.
    5. Massimiliano Caporin & Fulvio Fontini & Samuele Segato, 2021. "Has the EU-ETS Financed the Energy Transition of the Italian Power System?," IJFS, MDPI, vol. 9(4), pages 1-15, December.
    6. Friedrich, Marina & Mauer, Eva-Maria & Pahle, Michael & Tietjen, Oliver, 2020. "From fundamentals to financial assets: the evolution of understanding price formation in the EU ETS," EconStor Preprints 196150, ZBW - Leibniz Information Centre for Economics, revised 2020.
    7. Schleich, Joachim & Lehmann, Sascha & Cludius, Johanna & Abrell, Jan & Betz, Regina Annette & Pinkse, Jonatan, 2020. "Active or passive? Companies' use of the EU ETS," Working Papers "Sustainability and Innovation" S07/2020, Fraunhofer Institute for Systems and Innovation Research (ISI).
    8. Sato, Misato & Rafaty, Ryan & Calel, Raphael & Grubb, Michael, 2022. "Allocation, allocation, allocation! The political economy of the development of the European Union Emissions Trading System," LSE Research Online Documents on Economics 115431, London School of Economics and Political Science, LSE Library.
    9. Eslahi, Mohammadehsan & Mazza, Paolo, 2023. "Can weather variables and electricity demand predict carbon emissions allowances prices? Evidence from the first three phases of the EU ETS," Ecological Economics, Elsevier, vol. 214(C).
    10. Jan Abrell & Johanna Cludius & Sascha Lehmann & Joachim Schleich & Regina Betz, 2022. "Corporate Emissions-Trading Behaviour During the First Decade of the EU ETS," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 83(1), pages 47-83, September.
    11. Claudia Kettner-Marx & Daniela Kletzan-Slamanig, 2022. "Allowance Transactions in the EU ETS – Evidence from Austrian Companies," WIFO Working Papers 641, WIFO.

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    JEL classification:

    • F0 - International Economics - - General

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