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

Author

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  • Sascha Lehmann
  • Joachim Schleich
  • Jonatan Pinkse

Abstract

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. JEL Classification: Q48, Q54, Q58

Suggested Citation

  • Sascha Lehmann & Joachim Schleich & Jonatan Pinkse, 2024. "Allocation or Skill? What is Driving Corporate Trading Performance in the EU ETS?," The Energy Journal, , vol. 45(6), pages 203-221, November.
    • Handle: RePEc:sae:enejou:v:45:y:2024:i:6:p:203-221
    DOI: 10.1177/01956574241288994
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    More about this item

    Keywords

    climate policy; emissions trading; EU ETS; banking; transaction behavior; trading performance;
    All these keywords.

    JEL classification:

    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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